Who this applies to
Please note this guidance is only suitable for individuals who:
1. Own their own company (so can take dividends);
2. Are on the standard 1000L PAYE Tax Code; and
3. Do not have employee’s with a combined annual Employer’s National Insurance bill of more than £1,750.
If any of these are not the case please speak to your accountant who will advise the optimal salary based on your particular circumstances.
A quick recap of the current 2013/14 tax year
In the tax year ending 5th April 2014 (ie, 2013/14), we advised Ltd company owners that the most tax efficient strategy was:
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To take a small salary every month of £640 which comes to a total of £7,680 per year; and
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Take anything over and above this amount as dividends.
Assuming you have enough money in your business and are making enough profits to safely cover this, you can then pay yourself net dividends of up to £30,384 before you hit the higher rate (the point you start paying income tax on dividends).
If you have not used up all your tax free dividends yet this year and have the available cash, consider taking an additional dividend to use up all your tax free dividend allowance.
The 2014/15 tax year
Within the rules and thresholds for the year ending 5 April 2015 (ie 2014/15), there has been some significant changes that will affect the optimal amounts you should pay yourself. Unfortunately it’s a bit more complicated this time round but we recommend the following:
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We now recommend taking a gross salary of £833.33 a month or £9,999.96 a year.
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On this salary you must pay employees national insurance of over the full year of £245.28
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As per last year, we then recommend taking anything over and above this amount as dividends. You can take net dividends (ie the cash amount) of £28,500 this year before incurring any income tax.
Why pay National Insurance this year?
In previous years we have recommended that owner managers take a salary Of £640 per month, which was just below the national insurance threshold. In 2014/15 that is no longer the case. This is because the government is giving all small company’s £2,000 off their Employer’s National Insurance bill (not the employee’s NI though). Employer’s National Insurance is 13.8%.
So by exceeding the National Insurance threshold you are incurring employees national insurance of 12p on every £1 above the threshold but at the same time you are saving 20p of Corporation Tax for every £1, so it is worthwhile.
Will I be better off?
Yes, because of a higher corporation tax saving this year (approximately £2,000 saving), you will actually end up saving just over £200 more on tax than you did last year by taking the optimal salary.
Remember that if the company is owned by you and your spouse, all of the amounts above can be doubled meaning your tax savings will be increased even further.
Payment amounts and dates to comply with HMRC
If you pay yourself the advised £833.33 gross salary you will need to make the following payments:
Date |
Recipient |
Amount (£) |
| 28th April 2014 | Yourself | £833.33 |
| 28th May 2014 | Yourself | £833.33 |
| 28th June 2014 | Yourself | £833.33 |
| 28th July 2014 | Yourself | £833.33 |
| 28th August 2014 | Yourself | £833.33 |
| 28th September 2014 | Yourself | £833.33 |
| 28th October 2014 | Yourself | £833.33 |
| 28th November 2014 | Yourself | £833.33 |
| 28th December 2014 | Yourself | £833.33 |
| 17th January 2015 | HMRC | £245.27 |
| 28th January 2015 | Yourself | £788.05 |
| 28th February 2015 | Yourself | £733.34 |
| 28th March 2015 | Yourself | £733.33 |
If you are unsure how to make the payment to HMRC in January 2015, ask your Caprica Accountant for payment details.
