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New Blog Alert!

If you own shares in a company, you may already be aware that the dividend allowance is being cut again from 6 April 2024. From this date, the annual tax free dividends you are able to earn is £1,000. After this, dividends will be taxed at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).

With the increase in corporation tax rates in 2023, we are now having to consider each client individually to see whether the combination of corporation tax and personal tax on dividends is still the most tax efficient way to extract money from a business.

In some cases, we are seeing that tax and national insurance on salaries is a better option considering this method reduces the profits liable for corporation tax. In addition to this, salary counts towards relevant earnings so if a director was intending on making a large pension contribution in the year, a higher salary may need to be voted.

If a business is experiencing differences in turnover or profits when compared to previous years, it is also essential to discuss this with an accountant. We see directors continually extracting money from their businesses when the company is not making profits. At the end of the year there would be negative company reserves meaning dividends cannot be voted against the extractions. In contrast, a business owner is able to vote salary even if there are no profits, however this does need to be planned in advance and sustainable in the longer term.

 

If you wish to have a review of your position to check you have the right method in place for your extractions from your company, please call the office number on 01323 649 509 or email info@dominichill.co.uk and we would be happy to look into this for you.

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If you would like to book an initial free consultation, or are already a client of ours and want to discuss your accountancy challenges contact us.