Salary vs. Dividends:
Reduce Tax and Increase your Net Pay
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If you are a shareholder, you may have the option to remunerate yourself by way of dividends rather than taking a significant salary and this can give rise to substantial savings for you individually as well as for your company.
There are several strategies for implementing a dividend structure that Accountancy Coop can advise on including:
• Utilising the spouse allowance
• Restructuring the company to enable a dividends strategy
The Accountancy Coop recently undertook a review of a company making annual profits of around £50,000 and paying its two director/shareholders gross salaries of around £130,000 each, this review identified savings of over £60,000 by reducing the director/shareholder salaries in favour of a dividend policy. These were annual savings which could have been available for a number of years prior to our involvement.
Dividends - The Myth
The use of a dividend remuneration policy is a long-standing and popular tax planning tool. However, it is often one that advisers do not recommend on the basis that they consider that HMRC "will not like it" or "will expect to see a certain level of salary".
The reality is that the payment of dividends in this way is a perfectly acceptable strategy within the realms of the tax legislation and has been for a significant number of years. It is a common and non-contentious tax planning measure which can only be challenged if the operation of dividends is not compliant with company law.
Therefore as long as the strategy is carefully devised and the correct procedures implemented, it is as acceptable (and as easy) as paying a salary.
There are of course a number of factors to take into account to devise the most appropriate strategy for each individual case. Therefore it is essential that a careful review is undertaken of each shareholder’s remuneration requirements, the impact upon the company’s tax position and the effect on the individual’s self-assessment amongst other things.
However, once a suitable strategy is devised it can be quickly implemented so that the savings can start to be generated without delay.
As well as a full report service Accountancy Coop is able to provide additional tax support information and materials to enable businesses to make more informed choices in the routes they take to understand and reduce tax expenditure.
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