Massey Accounting Company

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Optimal Directors’ Salary and Dividend Mix for 2017-18

Probably the most important post of the year for limited company directors!

Question: What’s the most tax efficient salary and dividend mix for the 2017/18 tax year?

An owner managed limited company will usually pay their directors / shareholders with a mix of salary and dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2017/18 is:

Upper limits for 2017/18

Salary – per annum: £8,164 (last year £8,060)
Salary – per month: £680 (last year £671)

Dividend – per annum: £36,836 (last year £34,940)
Dividend – per month: £3,069 (last year £2,911)

It should be noted that since the introduction of the dividend ordinary tax rate of 7.5% on dividends over £5,000 there will be a personal tax bill of £2,138 (last year £2,025) if dividends are paid all the way up to the basic rate limit of £45,000 (last year £43,000).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,500 and dividends up to a maximum of £33,500 (the overall tax saving between the director and the company being around £234).

This second option will not be the best fit for everyone. More that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.

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Optimal Directors’ Salary for 2016-17

Probably the most important post of the year for limited company directors!

If you’re looking for the 2017/18 optimal directors’ salary, check out this year’s post here. Otherwise for our 2016/17 article read on.

An owner managed limited company will usually pay their directors’ / shareholders’ with a small salary + dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2016-17 is:

Upper limits for 2016-17

Salary – per annum: £8,040 (last year £8,040)
Salary – per month: £670 (last year £670)

Dividend – per annum: £34,960 (last year £30,891)
Dividend – per month: £2,913 (last year £2,574)

It should be noted that with the introduction of the dividend ordinary tax rate of 7.5% there will be a personal tax bill of £2,025 if dividends are paid all the way up to the maximum basic rate limit of £34,960 (yes, that’s a personal tax bill of up to £2,025 compared to £nil last year!).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employers N.I.) by up to £3,000 (last year £2,000).

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,000 and slightly lower dividends of £32,000 (the overall tax saving between the director and the company being around £237 (last year £203)).

This second option will not be the best fit for everyone. This year, more that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.


Leave a comment

Payroll clients beware!

Starting 6 March 2015 HMRC will issue penalties for late payroll submissions.

This means that payroll data needs processing and submitting to HMRC on or before the date your employees are paid.

Penalties are charged for more than one late submission in the tax year as follows: 1-9 Employees – £100 per month; 10-49 Employees – £200 per month.

Whist this is strict I don’t think we’ve had one late filing this year. However, the real trap may be when it comes to leavers:

Leavers (and their P45) should be processed and notified to HMRC on or before the day they leave or on the day of their last payment. Failure to report on time will trigger a late filing penalty.

Please keep this in mind and keep us informed as soon as you know when an employee is starting and leaving.

Source material: https://www.gov.uk/what-happens-if-you-dont-report-payroll-information-on-time

Enjoy saving tax?

View our video: How to Save Tax YouTube-logo-full_color; and follow our blog on Google+ or click +Follow at the bottom of this page.