What is your Tax Efficient Strategy for Salary & Dividends in 2019/20?
From April of 2019, the most tax efficient remuneration strategy for a director, wishing to remain within the basic rate tax band, will be to keep your monthly withdrawals from the limited company below £4,165 per month, and to save £222 per month of that amount to cover your personal tax bill.
The breakdown is as follows:
1. Monthly Salary
- Beneath the tax and NI threshold but high enough that you will still qualify for state pension & benefits
- This assumes you have sufficient company profits available after Corporation Tax
- To cover the tax on dividends, which will be payable 31/01/2021. You may want to save more to also cover your payments on account for 2020/21.
If you follow the above, you will avoid going into the higher rate tax bracket.
Note these figures are purely based on earnings from your business and do not consider other personal income you may receive.
*We don’t advise declaring dividends monthly, these may be challenged as salary. The above have been provided purely to help you budget and instead you should consider declaring dividends quarterly or six monthly.
If you need to declare larger dividends then just remember that for every £1,000 that you pay yourself in dividends, over and above the £3,446 per month, you will be liable for £325 in tax (as you fall into the higher rate bracket where income is taxed at 32.5%).
Grab your free Salary Guide
Want more information? We’ve created a Salary Guide with Dividend Tax Illustrations for the year ahead. To get your hands on a copy get in touch today!