Can a business reduce their tax liabilities by paying dividends as opposed to salary? The answer is not always obvious, and only after a thorough review of the business by an expert can the right response be gained.
What's right for you?
Very much dependent on circumstances, the following table outlines some of the initial considerations:
|PAYE||Lots of free help available from the Revenue||Can be expensive in National Insurance for smaller companies|
|Tax and National Insurance liabilities are easy to calculate and paid at source||Can be used only to pay employees of the company|
|PAYE lets you utilise your personal allowance and starting rate of tax (10%) where applicable|
|Payroll expenses are deductible from the profit chargeable to Corporation Tax|
|Dividends||No National Insurance||Can usually only be paid from accrued profits of the company (although we have been able to overcome this in some circumstances)|
|More tax efficient in most circumstances|
|Can be paid to individuals who are not employees of the company (they must be shareholders)|
As specialist tax advisers, taylorcocks is able to provide a review service that enables businesses to see which method would work best for their company and ultimately the amount of money they could save.
The review includes:
- A review of the remuneration for each shareholder taking into account any other income they have.
- Identification of the savings available depending upon whether these are received by the shareholders, retained by the company or split between them.
- Guidance on the correct dividend procedures to ensure that they comply with company law so that the legality of the dividends cannot be challenged by HM Revenue and Customs.
- A review of the effect of the new policy on the company’s corporation tax.
- An analysis of the effect of the new policy on the shareholders' self assessment and their tax payments.
- A review of other considerations such as properly waiving salaries, impact on life policies, impact on pension arrangements etc
As well as a full report service taylorcocks is able to provide additional tax support information and materials to enable businesses to make more informed choices in the routes they take to understand and reduce tax expenditure.