⭐️⭐️⭐️⭐️⭐️ Based On 100+ Google Reviews

  • 0161 962 1855
  • Book Your Free Consulation
  • Home
  • About Us
    • Our Team
    • Our Social Commitment
    • Working With Us
    • Careers
  • What We Do
    • Making Tax Digital
    • Annual Accounts
    • Bookkeeping
    • Business Consultancy
    • Business Growth
    • Cash Flow Forecasting
    • Capital Gains Tax
    • Corporate Tax
    • Financial Forecasting
    • Inheritance Tax
    • Online Accounting
    • Payroll
    • Personal Tax
    • Property Tax
    • R&D Tax Credits
    • Self Assessment
    • Tax
    • VAT
  • Sectors
    • Startup Accountants
    • Construction
    • Creative and Digital
    • Dentists
    • Ecommerce
    • Electricians
    • Hair Salons & Barbers
    • Hospitality
    • Influencers
    • Law Firms
    • Manufacturing
    • Medical Professionals
    • Personal Trainers
    • Plumbers
    • Retail
    • Small Businesses
  • Resources
    • Case Studies
    • Tax and Business News
    • Testimonials
  • Contact Us
  • Careers
  • Home
  • About Us
    • Our Team
    • Our Social Commitment
    • Working With Us
    • Careers
  • What We Do
    • Making Tax Digital
    • Annual Accounts
    • Bookkeeping
    • Business Consultancy
    • Business Growth
    • Cash Flow Forecasting
    • Capital Gains Tax
    • Corporate Tax
    • Financial Forecasting
    • Inheritance Tax
    • Online Accounting
    • Payroll
    • Personal Tax
    • Property Tax
    • R&D Tax Credits
    • Self Assessment
    • Tax
    • VAT
  • Sectors
    • Startup Accountants
    • Construction
    • Creative and Digital
    • Dentists
    • Ecommerce
    • Electricians
    • Hair Salons & Barbers
    • Hospitality
    • Influencers
    • Law Firms
    • Manufacturing
    • Medical Professionals
    • Personal Trainers
    • Plumbers
    • Retail
    • Small Businesses
  • Resources
    • Case Studies
    • Tax and Business News
    • Testimonials
  • Contact Us
  • Careers

Extracting profit from the family company

  • Written by Katie
  • June 14, 2019
  • Insights

Extracting profit from the family company

The start of the new tax year means that shareholder/ directors may want to review the salary and dividend mix for 2019/20. The £3,000 employment allowance continues to be available to set against the employers national insurance contribution (NIC) liability which means that where the company has not used this allowance it may be set against the employers NIC on directors’ salaries.

Thus, where the only employees are husband and wife there would generally be no PAYE or employers NIC on a salary up to the £12,500 personal allowance.

There would however still be employees NIC at 12% on the excess over £8,632 (£166 per week) which would be £464 on a £12,500 salary, leaving £12,036 net.

Taxation of Dividend Payments in 2019/20

Traditional advice would then be to extract any additional profits from the company in the form of dividends. Where dividends fall within the basic rate band (now £37,500) the rate continues to be 7.5% after the £2,000 dividend allowance has been used. Thus where husband and wife are 50:50 shareholders they would each pay £2,663 tax on dividends of £37,500 assuming they have no income other than a £12,500 salary, leaving £34,837 net of tax.So a combination of £12,500 salary and £37,500 in dividends would result in £46,873 (93.7%) net of income tax and NICs.

Ensure dividend payments are legal

The Companies Act requires that companies may only pay dividends out of distributable profits. This means that in the absence of brought forward reserves the company would need to provide for 19% corporation tax in order to pay the dividends and thus there would need to be profits of £92,593 in order to pay dividends of £75,000 (after providing corporation tax of £17,593).

Overall the combination of salary and dividends suggested above would result in net of tax take home cash of £93,746 for the couple out of profits before salaries and corporation tax of £117,593 (20.3% overall tax). This still compares very favorably with the amount of tax and NIC payable if the couple were trading as a partnership.

Recent Posts

It’s P11D Season! Here’s What Employers Need to Know for 2024/25

June 9, 2025

New Advisory Fuel Rates from 1 June 2025

June 7, 2025

Employment-Related Securities Returns: Deadline 6 July 2025

June 4, 2025

HMRC Spring Update 2025: Key Tax Changes for Employers and the Self-Employed

June 2, 2025

Need Help?

Book a Free Consultation
PrevPrevious PostLand and buildings transactions tax
Next PostTax planning to minimise the high income child benefit chargeNext

A&C Chartered Accountants is the leading independent accounting firm in Manchester, providing accounting and business advisory to startups, sole traders and SMEs.

Facebook-f Linkedin Instagram Youtube

Useful Links

  • About Us
  • Services
  • Testimonials
  • Contact Us
  • Privacy
  • Cookies
  • About Us
  • Services
  • Testimonials
  • Contact Us
  • Privacy
  • Cookies

Get In Touch

  • info@ac-accounts.co.uk
  • 0161 962 1855
  • Manchester City Centre: 53 King Street, Manchester, M2 4LQ
  • Sale, Cheshire: 1A Marsland Road, Sale, Cheshire, M33 3HP
Xero Platinum Partner Logo
ICAEW Chartered Accountant Badge
SME Climate Hub Committed Badge
Good Business Charter Accreditation Badge

A&C Chartered Accountants © All Rights Reserved 2024 | Company Registered in England & Wales No: 06272442 | VAT Registration No: 910327267