If you are a director and shareholder of a company you could take payment by dividends, by salary, or a mixture of the two.
There are advantages and disadvantages to both methods, including:
| Advantage | Disadvantage | |
| Salary | Reduces corporation tax bill. | Liable for national insurance contributions. |
| Can be paid even when the company is making a loss. | Only available to employees. | |
| Can be better for cashflow. | – | |
| Could enhance pension contribution allowance. | – | |
| Dividend | No national insurance liability. | Can normally only be paid when the company is in profit. |
| Non-working shareholders are entitled to dividends. | – |
A popular strategy is to take a salary totalling your personal allowance, and the rest as dividends, but it is important to note that this is a complex area and a number of factors will need to be considered before making the decision that is right for you.
We can help you to weigh up your options and make sure that you are paying yourself in the most tax efficient way. Please contact us to find out more.