Helpsheet
Salary vs. Dividends:
Reduce Tax and Increase your Net Pay
(Dividend Calculator 2)
Back to HelpsheetsSalary/Dividend – Based on tax year 2012/13 at higher rate of tax and a small company.
As a company director you can save tax by choosing the best way to draw remuneration from profits - via salary or via dividend. The most tax efficient way depends both on your personal tax rate and on the corporation tax rate.
£25,000 has been used as a remuneration figure for this calculator to illustrate the comparisons. In reality there may be other personal income to take account of, every case is different. The calculations are complex and professional advice should be taken.
Example Criteria:
Tax Year: 2012/13
Personal Tax Rate: Basic Rate (40%)
Corporation Tax Rate: Small Companies Rate (20%)Please note that a basic salary equivalent to the basic personal allowance is included in the dividend option
Working calculations:
Salary Option Dividend OptionNotes Resulting Taxable Profits £ 0 £ 25,000Resulting Corporation Tax £ 0 £ 5,000= £25,000 x 20% Available Gross Salary £ 22,876 £ 0( £22,876 + £2,124 ) = £25,000 Employers NI on Salary £ 2,124 £ 0Available Dividend £ 0 £ 20,000= £25,000 - £5,000
Net Disposable Income of Director:
Salary Option Dividend OptionNotes Dividend £ 0 £ 20,000Salary £ 22,876 £ 8,105Less PAYE Tax on Salary £ 9,151 £ 0Less NI on Salary £ 1,834 £ 0Additional Tax on Dividend £ 0 £ 5,000Gross Dividend £20K taxed at 32.5%
Less 10% tax creditTotal £ 11,891 £ 15,000Dividend produces £ 3,109 more of disposable income!
Breakdown of where the £25,000 goes:
Salary DividendCorporation Tax £ 0 £ 5,000Additional Tax on Dividend £ 0 £ 5,000PAYE Tax £ 9,151 £ 0Employee's NI £ 1,834 £ 0Employer's NI £ 2,124 £ 0To Director £ 11,891 £ 15,000Total £ 25,000 £ 25,000
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