Best split of pay/dividends ?

totalguitar

I'm currently an employee of a private limited company but will soon by buying half of the company. The company has 2 current directors and I will be buying half the shares from one of them who is retiring. At present they pay themselves £30k wages and £30k dividend. I'm sure this isn't the best way to be paid but what is ? I'd appreciate some advice please so I can maximise my income.

tasticz

Dont you guys have an accountant? They are probably best answeeing questions like this

I think its something like this but not 100% sure!!

Option 1)
Take min salary enough to earn NI year but below threshold so say £718 per month salary and rest as dividends up to 7.5% and then 32.5%

Option 2)

Take full salary up to tax free limit which I think is 12500? 12500/12 = 1041 per month tax free but pay NI unsure if company need to contribute in this case or just yourself then take rest as dividends at 7.5 And 32.5??

I think you can also contribute same amount up to your salary so in first option up to 8k and 12k in second to your pension scheme and reduce tax payable

00ec25

it depends entirely on whether the company is your sole source of income, if it is not and, for example, you have dividend income from elsewhere there are many permutations which are best explored by talking to your accountant if they have full knowledge of your circumstances.

In principle what he said above is correct, dividends have a slight tax advantage compared to salary so you favour dividends where possible whilst always ensuring you do have sufficient earned income ("salary") to get an NI credit without the company itself having to pay employers NI

2 other factors which explain why only your accountant can really answer your question are:
a) when does the company make its profits? Technically you can only draw a dividend if the company has profits at that time. So if profits are uneven, so will be dividends.
b) corporation tax? Salary is a cost to the company so the company pays less corporation tax but has less profits from which to pay dividends. The overall picture of how much can you take out of a company in the most tax efficient manner is not simply salary v dividends, you also need to consider the company's bottom line and how much it has to pay you from.

there are other issues (eg pensions) which would take far too long to explain

go talk to your accountant...

p00hsticks

Assuming both partners own equal numbers of the same class of shares, in the end the decision has to be one mutually agreed by both directors. You can pay yourselves different salaries, but you can't pay a different amount of dividends to people who own the same number of shares.

tebthereb

I suppose that would depend on the rights attached to the shares. It’s quite possible to have the same amount and value of share capital but with different share classes allowing different dividends on each.

As has been said speak to your tax advisor, or provide much, much more info here.

The basic position is usually small basic salary and the rest as dividend but it is very situation specific to get the actual optimal splits.