Salary or Dividend Best in 2023/24?

In recent years many accountants have advised their director/shareholder clients that the most tax efficient method of extracting profit from their family company was to pay themselves a low salary, at or around the £12,570 personal allowance, with the balance in dividends. 

This strategy may need to be revisited with the introduction of higher corporation tax rates from 1 April 2023 as company profits in excess of £50,000 are taxed at an effective 26.5% rate. Where company profits exceed £50,000 it may be more tax efficient to increase the salary or put a bonus through the company accounts.

Other things to consider would be for the company to pay more into your pension or provide you with an electric company car, both of which can be tax efficient.

There are lots of factors to take into account, including the level of profit and how much you need to draw out of the company to live on. We would suggest that we set up a meeting with you a couple of months before the company year end so that we can give you the best advice.

Year End Tax Planning Ideas for Your Business

As mentioned above it is always a good idea to set up a planning meeting with us a couple of months before your business year end so that we can advise you on the best actions to take to reduce your taxable profits. In addition to considering paying yourself a bonus from your company you might consider:

·         Bringing forward expenditure on equipment to take advantage of the 100% annual investment allowance (AIA) – up to £1 million a year on new and used equipment;

·         For limited companies, most new equipment qualifies for unlimited “full expensing” relief;

·         Where equipment is bought on hire purchase, make sure that it is brought into use by the year end to get tax relief on the full purchase price; and

·         Making additional pension contributions, taking advantage of the new £60,000 annual input allowance.