Based On 100+ Google Reviews

0161 962 1855
Book Your Free Consulation

Home
About Us
What We Do
Sectors
Resources
Contact Us
Careers

Home
About Us
What We Do
Sectors
Resources
Contact Us
Careers

Tax efficient extraction of profit from companies for 2018/19

Written by AC Accounts
April 10, 2018
Insights

The new tax year means that many directors of family companies will be considering the most tax efficient method of paying themselves.

For many years accountants and tax advisors have suggested that director/shareholders should extract profit by paying themselves a low salary with the remainder of their income being extracted in the form of dividends.

Although dividends are not deductible in arriving at the company’s taxable profits, they do not normally attract National Insurance Contributions (NICs). The starting point of NICs will rise to £162 a week from 6 April 2018. This is now significantly lower than the £11,850 personal income tax allowance. A salary just below £162 a week, £8,424 a year would mean no NIC would be due but would be sufficient to count as a qualifying year for State Pension purposes (if above £6,032 lower earnings limit).

Remember that employers other than those where the director is the only employee are entitled to a £3,000 employment allowance that can be set against employer’s NICs. If this has not been utilised against NICs on staff wages then consider increasing the directors’ salaries up to £11,850, as the additional salary would save corporation tax at 19% on the £3,426 extra salary which equals £651, whereas the employees NIC would be £411.

As far as the level of dividends is concerned, the rate of tax changes from 7.5% to 32.5% at £46,350 so ideally the dividends should not exceed £34,500 if a salary of £11,850 is paid. The first £2,000 would be taxed at 0% with £32,500 being taxed at 7.5%. Don’t forget that this tax will then be due on 31 January 2020.

Contact us to discuss other ways in which you can extract profits from your family company tax efficiently.

Recent Posts

Mega Marshmallows: Food or Confectionery? Why it Matters for VAT

May 9, 2025

Holiday Lettings and Property: What the Abolition of Furnished Holiday Lettings Means for You

May 9, 2025

MTD for Income Tax – FAQs

May 7, 2025

HMRC Is Changing – Here’s What You Need to Know

April 8, 2025

Need Help?

Book a Free Consultation

PrevPrevious PostCharities gift aid small donations scheme

Next PostTaking a lodger? Don’t forget to claim “rent a room” reliefNext

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
Accounting Services
Client Testimonials
Contact Us
Privacy
Cookies

About Us
Accounting Services
Client 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

ICAEW Chartered Accountant Badge

SME Climate Hub Committed Badge

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