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Profit extraction in 2020/21 – What is the optimal salary?

2020-04-01T20:00:49+01:00April 15th, 2020|Categories: Blog, Limited Company, PAYE|Tags: , , , , , |

A popular tax-efficient profit extraction strategy used by personal and family companies is to take a small salary and extract further profits as dividends. Where this approach is adopted, the starting point is to determine the optimal salary. While this will depend on personal circumstances and there is no excuse for not doing the sums, there are some general guidelines. Where the director does not have the requisite 35 qualifying years to provide access to the full single tier state pension paying a salary at least equal to the lower earnings limit for Class 1 National Insurance purposes (set [...]

Salary or bonus?

2019-11-01T21:15:38+00:00November 9th, 2019|Categories: Blog, PAYE|Tags: , , , |

As 31 December approaches, many companies will be getting ready to tie up tax matters for their financial year-end and giving consideration to salaries, bonuses and dividends. Given current tax rates, paying a dividend rather than a salary will often be a more cost-effective way of withdrawing profits from a company. However, if the company is loss-making and has no retained profits, it will not be possible to declare a dividend, and an alternative will need to be considered. This often involves an increased salary or a one-off bonus payment. From a tax perspective, the position will be the same [...]

Dividend Allowance

2019-08-23T16:23:01+01:00July 31st, 2019|Categories: Blog, Limited Company, Personal Finance, Taxation|Tags: , , |

Many family-owned companies allocate dividends towards the end of their financial year and/or the tax year, which means that the impact of the reduction in the dividend allowance from £5,000 to £2,000 from 6 April 2018 is only now starting to come to light. Many other taxpayers may not become aware of the change until they complete their 2018/19 tax return, which in most cases, will be due for submission to HMRC by 31 January 2020. The amount of tax payable on a dividend will primarily depend on which tax band the first £2,000 falls in. The tax rates on dividend [...]

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