Salary + Dividends

As per the Dividends section: This strategy only applies if you are a director/shareholder of a limited company. 

Using the combination of both salary and dividends is something that many business owners are familiar with. This is the general advice that most owners receive from their advisers as it has traditionally been the most efficient OBVIOUS method.

With all the changes to the tax rules in the last few years, this strategy, while still a solid one, needs to be reassessed on an annual basis to ensure that it remains tax efficient. Using the tax free allowances that we are provided with by HMRC yearly, a salary & dividends strategy is robust.

Dividend Tax Table

For this strategy, we have two calculations as it is important to understand how salary and dividends work together. In the first calculation, we’ve used Mike’s salary of £45,000 and paid a dividend of £50,000. In the second calculation, we’ve reduced Mike’s salary to £8,164 (minimum amount to get the state pension credit) and paid a dividend of £86,836 (£95,000 - £8,164). We again used the same Tax Code (1150L) and calculated the Employee NIC in the usual way.

Salary + Dividend Calculation 1
Salary + Dividend Calculation 2