Director’s Salaries

25/04/2014

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As from 6th April 2014 the Personal Allowance increased to £10,000 for a Basic Taxpayer, which translates into a Tax Code of 1000L.

Through a Limited Company, it’s a highly used treatment for a mix of Salary and Dividend to be used to be more Tax Efficient, Salary to be kept below PAYE levels and remainder of drawings to be down as Dividends, of course Company Profits need to allow this to happen as Dividends from a Non Profitable business would be illegal.

As from 6th April, you could draw £833.33 per month Tax Free but to avoid NIC too, the monthly figure £641.33 increased to £663.00.

A Worked Example:

Director X is sole director of Limited Y and wants to draw around £2,000pcm totalling £24,000 for 14/15, knowing Y’s Retained profits are £33,000 and current performance is in line for a £25,000 year achievement, this would be how it would work:

Basic Salary £663.00 x 12months = £7,956.00

Dividend £1,337.00 x 12months = £16,044.00

Totalling the £24,000 desired amount, once Dividend is Grossed up to £17,826.67 added to Salary £7,696 provides a Taxable Income of £25,522.67 to go into his Personal Tax Return, and at this level with no further Income, would have a Zero Tax Liability for 14/15.

A future Blog will be how this example works in Director’s X Tax Return and how the figures are shown, along with important Thresholds to watch out for and maintain.

Contact Jason on 0191 5580069 to discuss what’s best for you…