Salary vs Dividends: tax effective company restructuring
If you are a shareholder, you may have the option to remunerate yourself by way of dividends rather than taking a significant salary and this can give rise to substantial savings for you individually as well as your company.
The ability to pay remuneration by way of dividends does not need to be restricted by the split of the company’s share capital between the shareholders.
Taylorcocks recently undertook a review of a company making annual profits of around £100,000 and paying its two director/shareholders gross salaries of around £50,000 each. The shareholders were aware of the possibility of paying dividends but felt that this would not be effective as they had unequal shareholdings.
Our review indentified savings of over £21,000 by restructuring the company’s share capital to facilitate the reduction of the director/shareholder salaries in favour of a dividend policy. The restructuring did not impact upon the ownership or control of the company and the savings identified were annual savings which could have been available for a number of years prior to our involvement. These were also available to allocate between the individuals and the company as considered appropriate.
There are of course a number of factors to take into account to devise the most appropriate strategy for each individual case. Therefore it is essential that a full review is undertaken of the company’s structure, each shareholder’s remuneration requirements and the impact upon the company’s and individuals’ tax positions.
It is important that any changes to a company share structure are carefully considered and are undertaken to comply with any requirements of the Companies Act and to ensure that the operation and control of the company is unaffected.