Most tax efficient salary for 2016-17

[smileyface]

As far as I'm aware, in the 2016-17 tax year, the personal allowance goes up to £11,000 and the first £5,000 of dividends is exempt from tax.

In this article, example 2, it claims the most tax-efficient salary to take is £8,060.

How much will the April 2016 dividend tax changes cost you?

Can someone please explain why this is the case? I thought £11,000 is the upper limit.

Also, does it imply if I choose NOT to take a salary, I can take £11,000 + £5,000 = £16,000 as dividends, completely tax free?

Thanks

[mudskipper]

As far as I'm aware, in the 2016-17 tax year, the personal allowance goes up to £11,000.

In this article, example 2, it claims the most tax-efficient salary to take is £8,060.

How much will the April 2016 dividend tax changes cost you?

Can someone please explain why this is the case? I thought £11,000 is the upper limit.

Thanks

The difference is National insurance is due between 8060 and 11K. If you still qualify for the Employment Allowance (currently if there's more than one employee - subject to confirmation in the budget) then 11K is still a better option.

[smileyface]

Thanks, so you mean no NI is payable for anything up to £8,060?

Do you know the answer to my second question, re the taking salary as dividends?

[NibblyPig]

The employee thing will be very interesting to find out, as technically my company employs my accountant as well as myself.

[northernladuk]

The employee thing will be very interesting to find out, as technically my company employs my accountant as well as myself.

Really?? I think you are using the wrong meaning. You are employing his services, not him.

[NibblyPig]

Really?? I think you are using the wrong meaning. You are employing his services, not him.

In my case I am employing him as a salaried employee.

[northernladuk]

In my case I am employing him as a salaried employee.

Ah.... Does he have a contract of employment?

But yes that will be a bit different from the norm.

[NibblyPig]

Ah.... Does he have a contract of employment?

But yes that will be a bit different from the norm.

Yep - It is a bit unusual, I must admit.

If it avoids this unfortunate punishment for companies with a single employee that is also the director though, a happy coincidence it was set up that way.

[mudskipper]

Also, does it imply if I choose NOT to take a salary, I can take £11,000 + £5,000 = £16,000 as dividends, completely tax free?

You can, and there would be no further tax to pay; but you will already have been taxed at 20% Corp Tax on your dividends, so this is not the most efficient way to take the money.

Your accountant should be able to talk you through this stuff. You do have an accountant, don't you?

[TheFaQQer]

Yep - It is a bit unusual, I must admit.

If it avoids this unfortunate punishment for companies with a single employee that is also the director though, a happy coincidence it was set up that way.

It's hardly a "punishment" - the EA was intended to encourage companies to take on employees, not for one man contractor limited companies to get a tax break.