Salaries and Dividends – Keeping your pay tax efficient

By now many of us will have had time to digest the many changes in the Autumn Statement, but questions continue to arise about how owners can tax-efficiently extract profits from their business.

While traditionally a combination of regular income and dividends has been the most tax-effective form of remuneration, business owners need to consider the following from April 2023:

  • Corporation Tax is rising to a top rate of 25 per cent from 1 April for the most profitable companies, with only businesses with profits of £50,000 or less enjoying the same rate of Corporation Tax
  • The threshold for the additional rate of Income Tax will fall from £150,000 to £125,140 – this will put thousands of more people into the 45 per cent rate of tax and 39.35 per cent for dividend tax

The continuing freeze on personal tax allowances and reliefs – extended to 2028 – means other income will need to be considered going forward as well when deciding on remuneration.

How should owners set their remuneration?

The combined impact of the changes listed above means that traditional methods of remuneration that attempted to balance regular salaries income and divided income may no longer be as tax effective.

Business owners will need to consider other tax-efficient methods for extracting profits from their business. There is a wide range of options available.

If you need guidance on extracting profits from your business, please contact us.

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