Dividend or salary – or both to extract funds from your company

What is the most efficient method of extracting funds from your company?

As a director of your limited company, you are not allowed to simply keep the profits in the same way that a sole trader does. Instead, you will need to decide how much to pay yourself. The choice between drawing a salary or receiving dividends can have significant implications for your personal finances, tax obligations, and the financial health of your company.

It’s important to find the most tax-efficient strategy for your individual circumstances and financial goals. However, there is no straightforward answer, as there are many variables to take into account so each case needs to be looked at individually. The following are Just a few of the things to consider:

  • Personal income from other sources
  • Personal rates of tax
  • Company tax rates being paid
  • employers allowance – claimable or not
  • High Income child benefit charge
  • Age of directors
  • National insurance contribution requirements
    Following the Spring 2024 budget, there are additional considerations due to the reduction in Class 1 National Insurance contributions.

A combination of salary and dividends is likely the right solution, but finding the best balance will depend on your specific situation and tax planning.

Please contact us if you would like to discuss this further or require clarification of your current situation.