Tax efficient salary for 2015/16

[PerfectStorm]

Nixon Williams are recommending the full £10,600

[AnotherGuy]

Do you need to take into consideration any other income you might have when deciding the salary/dividend mix? Can it be modified later?

I say this because in my case, and I don't think I'm the only one, I have other (personal) income (not company income) via bank current and saving accounts interest, and dividends from other (public) companies.

It doesn't really amount too much but...

If so, how do you calculate it, given that the interest tends to be compound, and also differ on withdrawals, so each month you get a different figure?
Also dividends (from other companies, not mine) might increase/decrease during the year.

Thanks.

[arby]

I suspect all you can do is to make the best prediction you can and then tweak the salary up or down as appropriate as the tax year draws to a close to hit the target as closely as you can?

[Martin at NixonWilliams]

£8060 is where we are. Clients have the choice of course but in our experience the majority prefer not to have the hassle of paying PAYE/NIC every quarter for the small saving. That said, if they go for the higher salary we process it as part of the service. No additional fees charged. Seems a bit cheeky to do so IMHO.

A Director paying a salary of £10,600 (and on the correct tax code) would not need to make quarterly payments - There would only be one payment due which would fall in the final quarter. This is a small price to pay for the additional saving in our opinion.

[jamesbrown]

Do you need to take into consideration any other income you might have when deciding the salary/dividend mix? Can it be modified later?

You're not going to faff around with salary during the year (especially with RTI). Nominate a salary (~£10.6k makes the most sense IMHO) and then allow sufficient flexibility for a final dividend that can be adjusted to reflect the reality at year end. I typically pay £25k in mid-April and then a final dividend towards the end of the tax year, but I also wouldn't hesitate to go into the higher rate if needed in a particular year.

[Contreras]

Do you need to take into consideration any other income you might have when deciding the salary/dividend mix?

Yes, you do. There isn't a one size fits all approach.

Can it be modified later?

You can't retrospectively change salary that has been paid, but you could pay more or less for later months of the year if that helps. Or you could pay salary as a lump sum annually, once other income for the year is known or can be estimated.

I say this because in my case, and I don't think I'm the only one, I have other (personal) income (not company income) via bank current and saving accounts interest, and dividends from other (public) companies.

For 2014-15, optimum salary would typically be £10k minus the grossed up savings account interest (assuming no personal pension contributions, charity donations, or anything else that effectively acts to increase the personal allowance). Say the savings account interest was £400 net. interest, optimum salary would be £9.5k and at self-assessment you'd get a refund of £100.

For 2015-16, I believe the taxation of savings interest has changed so that will affect things. Paying salary annually means I haven't got round to looking at this yet.

As for dividends from other companies:- this won't affect the optimum salary but will affect the level of YourCo dividends hitting the high rate tax threshold.

HTH

[AnotherGuy]

You're not going to faff around with salary during the year (especially with RTI). Nominate a salary (~£10.6k makes the most sense IMHO) and then allow sufficient flexibility for a final dividend that can be adjusted to reflect the reality at year end. I typically pay £25k in mid-April and then a final dividend towards the end of the tax year, but I also wouldn't hesitate to go into the higher rate if needed in a particular year.

Thanks.

I was thinking of paying salary and dividends monthly.
So basically, I would just go for 10.6k as per my accountant recommendation and pay myself each month the appropriate salary and dividends, and I just need to take care in the last 1 or 2 months to make adjustments according to my other income, like bank interest, right?

Sounds good.

[jamesbrown]

Thanks.

I was thinking of paying salary and dividends monthly.
So basically, I would just go for 10.6k as per my accountant recommendation and pay myself each month the appropriate salary and dividends, and I just need to take care in the last 1 or 2 months to make adjustments according to my other income, like bank interest, right?

Sounds good.

Yeah, that's fine. It's something of a hassle to do monthly though so, if you have the profit available, you may want to consider a larger one at the start of the year. In any case, if you're going to pay a monthly dividend, make sure the paperwork is in order each month and I (and many others) would advise against mixing these payments, i.e. you should separate the salary and dividend payments.

[AnotherGuy]

Yes, I will make separate payments for salary and dividends.

Might do this quarterly though. Apparently there is no need to do it on a monthly basis, as I initially thought.

[PerfectStorm]

Yes, I will make separate payments for salary and dividends.

Might do this quarterly though. Apparently there is no need to do it on a monthly basis, as I initially thought.

Indeed, a 'real' company after all would issue a dividend perhaps annually, or not at all. Monthly sounds a bit like a salary, which....