Here we outline the suggested combination of salary and dividends from your limited company to make best use of the tax rates and allowances.
If you are looking at taking alternative combinations of salary and dividends, additional tax and NI will be due.
Tax will be payable on all dividends in excess of £2k so you should ensure you make sufficient provision to pay this additional tax by making regular payments to HMRC throughout the year.
Details of how to make payments with HMRC are listed here
Dividend and savings allowances are available. We consider the opportunities and pitfalls of the personal tax rules.
Posted by Kath Docherty
on August 07, 2017 / Posted in Contractors
Used in conjunction with a salary at or just below the personal allowance level, the extraction of funds from the company using dividends still offers the most tax effective route to minimising your personal tax liability.
Those who work in the public sector will be only too well aware of the additional scrutiny on the use of freelancers and how they operate their tax affairs.
Over the last year, we have received calls from clients who have been asked to provide assurances about their IR35 status and tax affairs.
Our advice has been:
- Ensure your contracts are reviewed for IR35 – we would suggest this is carried out by independent expert providers rather than using the HMRC helpline and,
- Assuming this review concludes they are operating outside of IR35 – then using a mixture of salary and dividends for extracting funds out of a limited company remains a robust and effective mechanism for achieving tax efficiency.
What happened in the Autumn Statement 2016?