In recent years, many accountants have advised their director/shareholder clients that the most tax-efficient method of extracting profit from their family company was to pay themselves a low salary, at or around the £12,570 personal allowance, with the balance in dividends.
This strategy may need to be revisited with the introduction of higher corporation tax rates from 1 April 2023 as company profits above £50,000 are taxed at an effective 26.5% rate. Where company profits exceed £50,000 it may be more tax-efficient to increase the salary or put a bonus through the company accounts.
Other things to consider would be for the company to pay more into your pension or provide you with an electric company car, both of which can be tax efficient.
There are lots of factors to take into account, including the level of profit and how much you need to draw out of the company to live on. We would suggest that we set up a meeting with you a couple of months before the company year-end so that we can give you the best advice.
Do you need further guidance on salaries and dividends?
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