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Whitehill Business Services Ltd >> news >> latest news >> What's the best mix of salary and dividends for 2015/16? Some factors to consider.

What's the best mix of salary and dividends for 2015/16? Some factors to consider.

Posted by admin on January 20, 2015

 For a small limited company it's always difficult to decide what the best salary and dividend package is for the coming tax_m.jpgfinancial year.  Firstly, you'll need to check whether you are caught by IR35.  If you are, there's not much point in reading further; all your earnings will count as salary.

But if you're outside the scope of IR35, here's some factors to consider:

  • From April 2015 the £2,000 annual Employment Allowance for employer National Insurance
    Contributions will continue and be extended to care and support workers (see HMRC site)

  • From April 2015, a spouse or civil partner will be entitled to transfer up to £1,000 of their personal allowance to their spouse or civil partner. This will only apply where the transferor is not liable to income tax or not liable above the basic rate for a tax year, and provided the recipient of the transfer is not liable to income tax above the basic rate. 

  • From April 2015 the NIC thresholds rise as follows; 

     2014-152015-16
      £ per week £ per week
    Weekly Lower Earnings Limit  111 112
    Weekly Primary Threshold  153 155
    Weekly Secondary Threshold  153 156
    Upper Earnings  805 815
  • The new personal tax allowance for 2015/16 is £10,600 - up £600 from 2014/15.
  • Don't forget pensions contributions or any other "Salary Sacrifice scheme" can be taken into account.

What does all that mean?  If you want to keep above the lower earnings limit but below the primary threshold in 2014/15 you would have calculated a monthly salary between £482 and £662.  If you are the only employee you could capture the NIC Employment Allowance value and stay below the tax threshold by paying salary up to £829/month.  

For 2015/16 the equivalent amounts are;

  • pay above the lower earnings limit but below the primary threshold in the range £485 - £671 / month
  • pay as the only employee with £2,000 employment allowance also - up to £838 / month.

....but do bear in mind that in 2015/16, if you pay salary below the personal allowance - i.e. £10,600 in the year - then you can potentially transfer up to £1000 of your personal allowance to your spouse or civil partner.  And of course if you have other earnings then these should be taken into account.

Finally, although you won't pay personal tax on dividends paid up until you reach the higher tax rate - i.e. £41,865 in total including salary for 2014/15, which moves to £42,385 for 2015/16.  So you can pay (42,385 - salary) assuming you have no other income sources, pension schemes etc.

And if you're confused, you might need to get some professional advice!