With the new divi tax next fy

[WordIsBond]

BUt if you have more than one employee you can claim relief on the Employers NI. You can do that now, but from next year it only applies to companies with more than one employee.

Next year was the context of the question. And if you do have employees, the employment allowance is likely to be used up by the employer NI on their salaries, leaving none to apply to yours.

[DaveB]

A salary of £11K makes sense if you like paying National Insurance (employer 13.8%, employee 12%) rather than corporation tax (20%).

Since employer NI reduces profit and thus corporation tax, the net rate is about 11% for employer NI, so for the band between £8K (where NI kicks in) and £11K (the start of the basic rate band), total NI tax runs about 23% and income tax is 0%, while corporation tax would be 20% and income tax / divi tax is 0%. So if you use an £11K salary as opposed to £8K, it will cost you about £90.

If you have any BIK, such as private health insurance, that can affect what is optimal.

BUt if you have more than one employee you can claim relief on the Employers NI. You can do that now, but from next year it only applies to companies with more than one employee.

[WordIsBond]

A salary of £11K makes sense if you like paying National Insurance (employer 13.8%, employee 12%) rather than corporation tax (20%).

Since employer NI reduces profit and thus corporation tax, the net rate is about 11% for employer NI, so for the band between £8K (where NI kicks in) and £11K (the start of the basic rate band), total NI tax runs about 23% and income tax is 0%, while corporation tax would be 20% and income tax / divi tax is 0%. So if you use an £11K salary as opposed to £8K, it will cost you about £90.

If you have any BIK, such as private health insurance, that can affect what is optimal.

[centurian]

And the 2nd most optimal level?

Optimal level plus a quid

What you probably mean is where the marginal rate jumps - that's going to be around the 40% tax band or thereabouts - roughly 43K, but not 100% sure due to the 5K counting towards personal allowance.

[jamesbrown]

And the 2nd most optimal level?

The second most optimal level depends on your future tax position. For example, paying 7.5% marginal divi tax is less than 10% on ER (which may not be available in future).

[DelboyTrotter]

I'm no expert but my back of a "cigarette" pack calculation is
Salary = £11,000
Dividend = £32,000 (Tax Free £5,000)
Divi tax = £2,025 (7.5% Tax)
Net = £40,975

I was going to budget myself a Dividend of £29,975 (5000+((32000-5000)*0.925) as I'll already factor in the 7.5% Divi tax at source.

Whichever way you go about it £2,025 is the most you'll pay under the old school technique of 10% divi tax if paying above £5,000 and below £32,000 in dividends.

[PerfectStorm]

And the 2nd most optimal level?

[jamesbrown]

Yeah, optimum is about 17k As in, 11k personal allowance, plus 5k divi, plus 1k interest (tax free).

[PurpleGorilla]

If you can survive on salary + £5000 then you'll pay no tax, but this is the only way to do it.

Eek!

[pr1]

Has anyone been able to work out the optimum salary/div split to maximise efficiencies? If so - what's it looking like?

11k sal 5k div

[DaveB]

Has anyone been able to work out the optimum salary/div split to maximise efficiencies? If so - what's it looking like?

Hasn't really changed. Salary either up to the personal allowance or NI threshold depending if you can claim the NI relief or not, then divi's up to the lower rate limit. You'll pay 7% tax on the Divi total less £5000. No way to avoid this. If you pay more salary to reduce the divi tax bill that will get taxed at 20% so not worth it.

Edit : If you can survive on salary + £5000 then you'll pay no tax, but this is the only way to do it.

[PurpleGorilla]

Has anyone been able to work out the optimum salary/div split to maximise efficiencies? If so - what's it looking like?