One of the reasons people trade through limited companies, is that they can remunerate themselves using a combination of salary and dividends, to pay themselves up £41,450 (including dividend tax credits) in 2013/2014 without incurring any National Insurance or Income Tax charges.
From 6 April 2013 onwards we recommend that you draw a salary up to a maximum of £641 per month.
This is just enough to maintain your National Insurance contribution record for state pension purposes, but it isn’t enough to make you actually pay any National Insurance.
Your salary is a tax deductible expense for your company, which will pay £1,538 less in Corporation Tax as a result.
As £641 a month is less than you probably want to live on, additional funds can be drawn as dividends. These should only be paid from profits (after Corporation Tax) so you do need to have confidence that sufficient profits are available. If there are insufficient profits the surplus funds withdrawn could be classed as an “unlawful distribution”. These are potentially repayable to your company.
Assuming you have no income other than the £641 per month salary, then you can receive £30,382 in dividends in the tax year commencing on 6 April 2013 without incurring any personal tax liability.
If your circumstances are more complex, or you would like to discuss this in more detail, then contact us today.