Business and Taxation Advisers
e-mail: [email protected]
www.bdhc.co.uk
2014/15 Optimal Salary and Dividend Planning
We are about to embark on the new 2014/15 tax year there are extra options to consider in relation to
extracting the optimal mix of salary and dividends from your company.
Traditional Planning:
Normally the suggested remuneration route for directors is to take a low salary, equal to the
Employer/Employee (now the same level for 2014/15) National Insurance threshold for the year, and then take
any further income from the company as dividends.
For the 2014/15 tax year these amounts are as follows:
Salary of:
Net dividends of:
£ 7,956.00 (£633.00 per month)
£30,518.00
With this mix of income, an individual can take home £38,474.00 with no income tax or National Insurance
due, although the company will have paid corporation tax on its profits.
This route is still the suggested route to follow for directors who have other sources of taxable income
expected for 2014/15, such as rental income, bank interest, or employee benefits in kind (e.g. medical benefits,
company cars and vans etc), which would use up part or all of their personal allowance. However, a slight
reduction in dividends to take would be suggested to ensure that you remain beneath the higher rate tax
threshold for the year.
Notes:


The National Minimum Wage requirements do not apply to company directors and
office holders e.g. company secretaries.
£7,956 is the maximum salary that can be paid without incurring a National
Insurance liability for the employee or employer; however, the employee will still
obtain a “credit” for the tax year for state pension and other benefits entitlement.
Impact of the new £2,000 Employment Allowance for National Insurance
From 6 April 2014 a new Employment Allowance comes into effect, whereby employers can claim up to
£2,000 off of their Employers National Insurance (Class 1) contributions for the year.
This new allowance provides an opportunity for certain directors to be able to take out a higher salary in
2014/15 whilst saving their company tax at the same time.
We would suggest a salary of £10,000 which is equal to the Personal Allowance level for 2014/15, rather than
the lower National Insurance threshold of £7,956.
The reasoning behind this suggestion is complex and we can provide you with example calculations if required.
However, in summary although the director would be paying Employee National Insurance of £245.28
(£10,000 – £7,956 = £2,044 x 12%) for 2014/15, the company would save corporation tax of £408.80 (£10,000
– £7,956 = £2,044 x 20%).
When considering the overall picture for salaries, it represents a tax saving of £163.52 per director, per year.
PTO
Director: Rosemary Chicken FCA.
bdhc chartered accountants is a trading name of swc4limited
Registered in England & Wales. Registration no 4999243
Continued
This means that you could take a higher salary whilst saving the company tax at the same time!
There would normally be Employers National Insurance on the extra salary above the threshold of £282.07
(£10,000 – £7,956 = £2,044 x 13.8%), however this would be exempted by the new £2,000 Employment
Allowance.
Therefore the optimal remuneration package for a director (with no other income) for 2014/15 would be as
follows:
Salary of £10,000.00 (£833.00 per month)
Net dividends of £28,678.00
With this mix of income, an individual can have £38,678.00 with no income tax, although as before the
company will have paid corporation tax on its profits, compared to £38,474 under the traditional route,
representing an increase of £204.
The director would only be £41.28 worse off in net income terms, once the £204 extra income available is
deducted from the Employee’s National Insurance due of £245.28, (so £38,433 compared to £38,474).
However, the overall tax saving for the director and company combined will still be £163.52 per director a
year by paying a higher salary (£408.80 corporation tax saved less £245.28 Employee National Insurance due).
As you can imagine there are numerous “what ifs” and we will try to look at each case individually to advise
optimal position.
If however you would like to discuss this beforehand, please do not hesitate to let me know.
Yours sincerely
Rosemary Chicken FCA
WE ARE HERE TO HELP! The taxation team at bdhc Chartered Accountants
Director: Rosemary Chicken FCA.
bdhc chartered accountants is a trading name of swc4limited
Registered in England & Wales. Registration no 4999243