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Business Tips

Salary vs Dividend Planning

Most owner-managers of companies will often have to make a decision about how they take money from the company. Of course, a salary is paid to an employee, whilst a dividend is paid to a shareholder. In many small companies, there will be one owner, who is also an employee.

Therefore there will be the option of which method to use. Generally, salary payments are more expensive from a tax perspective and therefore are not advisable for bigger sums. However for most individuals, it is important that they maintain their National Insurance record. As a result, a small salary is option very beneficial. This salary tends to be slightly above the lower earnings limit. Any extra then tends to be drawn as a dividend.

However there can be restrictions to this method (such as a restriction on dividends as a result of a lack in reserves).

For more information on tax planning, please contact the tax team on 020 8429 9245.