Do I pay myself a salary or dividend?

At a glance, From 6^th April 2021, covering England, Wales & Northern Ireland (NI):

• The personal allowance is now £12,570.
  
  
• The basic rate limit has increased to £37,000, and the higher rate is £50,270.
  
  
• Dividend allowance remains at £2,000.
  
  
• Employer and employee NIC thresholds are now £170/week for employers NIC and £184/week for employees.
  
  
• The upper earning limit for employees is now £967/week, or £50,270/year.

What is the optimal mixture of salary and dividend?

• This entirely depends on whether you need to pay a salary, how much income needs to be withdrawn and whether you are able to split you income with a spouse or any family members, you can also employ them in business.
  
  
• If your company is subject to PAYE and NIC on its income under IR35 or Managed Service Company (MSC) rules then there may be little to no point paying dividends.
  
  
• If the director has no other earnings, it Is sensible to pay a small salary and to preserve NIC dependent benefits. As long as the salary exceeds the lower earnings limit for NIC, entitlement is maintained. If this is kept below the secondary earnings threshold for NIC, £8,840/year, there is no liability.

As always, MSF is here to help. If you’re unsure or simply want some advice on what to do, don’t hesitate to contact us!

Note: the information above covers the tax year 2021-22.