With the start of the new tax year on 6 April 2015, the amounts directors can pay themselves in salary and dividends before incurring income tax have changed, as follows:
1. Personal Allowance increases to £10,600
This means that most UK taxpayers can earn £10,600 this tax year before paying any tax. As a director of your company, the company could pay you up to £883.33 per month through PAYE.
2. National Insurance Threshold Increases to £8,060
This means that as a director you can earn up to £671.67 per month through PAYE before paying NIC.
Alternatively, if you set your monthly salary at £883.33 to use up your full personal allowance, you would have a monthly NIC deduction of £25.40, leaving a net monthly salary of £857.93.
3. Employers NIC Allowance of £2,000 Continues
This means that the first £2,000 of employers’ NIC in this tax year does not have to be paid. If you have no employees, you probably won’t pay any Employers’ NIC at all this year.
4. Dividends
As long as all of your personal income stays below the higher rate tax threshold, you will pay no personal tax. The higher rate tax threshold this year is £42,385. This figure includes the personal allowance of £10,600, and bear in mind that it applies to gross dividends (you will receive net dividends from your company).
So What Does It All Mean?
OK – so above you have the facts and figures. What does this actually mean to you, and what do you need to do?
- Directors with Employees:
Set your monthly salary at £671.67. You will incur no personal tax or NIC on your salary.
You can take net dividends from your company up to £30,892 or £2,383 per month.
- Directors with No Employees:
Set your monthly salary at £883.33. You will incur employees’ NIC at £25.40 per month BUT the overall tax savings are far greater, if we also take corporation tax into account. (This is because your salary is deducted from the company profits before we work out corporation tax).
You can take net dividends from your company up to £28,606 or £2,574 per month.
**Available Profits from your Company:
Please be aware that although the tax and NIC thresholds allow you to take the above amounts as salary and dividends, you can only take dividends from your company out of available profits, and after providing for corporation tax.
If in doubt, always speak to us first before taking dividends. If you take too many dividends, these are treated as illegal dividends and must be paid back to the company.
Disclaimer
The above facts and figures are for information only, and assume that your company is your only source of income. The above should not be taken as specific tax advice. Please speak to Sharon directly for advice relating to your specific situation.
Thank you for reading.
Sharon Pocock FCCA
sharon@kinderpocock.co.uk
