Most effective salary / dividend combination in 2020/21
Limited Company Directors - Salary and Dividends 2020/21
To achieve the most tax efficient way of extracting money from your limited company you should consider a mix of salary and dividends.
How much salary should you pay?
From April 2020 you can pay yourself a salary of £732 / month without paying any tax or NI.
If you choose this option:
· You receive National Insurance Credits towards some benefits for example state pension
· You must be registered as an employer
· You must file an RTI (real time information) return to HMRC each pay period
· No income tax or national insurance is due on a salary at this level
· For the majority, this is the most tax efficient way of paying yourself from your company
Dividends – 2020/21
Any dividends paid over £2,000 will attract dividend tax.
The rates of tax will be:
· First £2,000 of dividends – tax free
· 7.5 % for dividends falling within basic rate tax (caution on how this is calculated)
· 32.5% for dividends falling within higher rate tax (which is over £50,000 in 2020/21)
· 38.1% for dividends falling within the additional rate of tax with income over £100,000 meaning restrictions on your personal allowance