Dividends or Salary – What is Best?

For many small Limited Company Owners they are faced with 2 types of taxation. In fact 3 if we include National Insurance. Many of these owners may also have run their businesses on a Sole Trader basis, and still regard the incorporated business as if it was a Sole Trade.

Under UK law an incorporated business is a separate legal entity to the individual / individuals that own it. It is liable to Corporation Tax on it’s profits and it’s owners are liable to Income Tax on their earning from the incorporated business.

As we have many clients who fall into this category, I thought it would be helpful to provide a spreadsheet that can compare the total tax liability of someone running an incorporated business with an individual being paid a salary!

The model is only valid for net profit after corporation tax and salaries up to £100,000. It does not take into account the clawback of personal allowances for those individuals earning over £100,000. It also does not take into account any earnings from savings. Unfortunately, our tax system is still overly complicated and my objective was to keep the comparison simple.

The model does have protection, so please read the notes.

Div vs Salary Protected

The above spreadsheet is for the use of clients and we can only provide advice if you are an fully engaged client, as per the engagement rules laid down by our professional body, The Chartered Association of Certified Accountants. But this does not prevent any non clients from down loading the model for their own use, but we can not be held responsible for how it is used unless we have a formal engagement.

Martin Samuel Waterlooville

Martin Samuel MBA FCCA

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