It’s a new tax year and time to answer that all-important question – what’s the most tax-efficient salary for a business owner this year?
Well – it depends. And it depends on a lot of things. Which is why you might need expert advice!
There are a lot more variables this year – the changes to Employers NI have a big impact in three ways – the threshold before you pay Ers NI has fallen to £5k, the rate has increased to 15%, and the Employment Allowance (the NI-free allowance that companies get) has risen to £10,500.
And that’s before you get to the variable Corporation Tax rate. And last year’s cut to Employees NI. And simply your preference – a salary might be easier to manage (no self-assessments or Director Loans) or help with a mortgage.
Basically, there’s a lot to think about.
We’re recommending £12,570 as a starting point as a salary, with dividends making up the rest of the income. This is the “classic” tax-efficient strategy and, for most business owners, this is indeed the sweet spot. You can read why in our blog below.
However, it really does depend. We recently did some planning with one of our clients and she will save over £11k in tax by taking all of her income this year as a salary, with no dividends. Now, this is due to her specific circumstances – she’ll be taking a £200k salary from a Ltd Co with profits over £250k (ie it pays Corporation Tax at the top rate of 25%). She also has some spare Employment Allowance in the company that will fund some of the Ers NI on her salary. The combined effect is the £11k saving as opposed to taking a “standard” salary and £188k of dividends.
And that’s the point – it’s not a “one size fits all” answer any more. £12,570 will work for most, but definitely not all.
So, if you need any help, just get in touch. And, in the meantime, you can read our full blog on why £12,570 is the best starting point.
| Why £12,570??? |
If you have any questions, please email su*****@*********************co.uk or give us a ring on 0151 380 8084.
Many thanks
Jon