Salary vs Dividends: Effective remuneration review
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.
Dividends - The myth
The use of a dividend remuneration policy is a long-standing and popular tax planning tool. However, it is often one that advisers do not recommend on the basis that they consider that HMRC "will not like it" or "will expect to see a certain level of salary".
The reality is that the payment of dividends in this way is a perfectly acceptable strategy within the realms of the tax legislation and has been for a significant number of years. It is a common and non-contentious tax planning measure which can only be challenged if the operation of dividends is not compliant with company law.
Therefore as long as the strategy is carefully devised and the correct procedures implemented, it is as acceptable (and as easy) as paying a salary.
Taylorcocks recently undertook a review of a company making annual profits of around £50,000 and paying its two director/shareholders gross salaries of around £130,000 each, this review indentified savings of over £60,000 by reducing the director/shareholder salaries in favour of a dividend policy. These were annual savings which could have been available for a number of years prior to our involvement.