Salary v Dividends in 2012/13

UK income tax and National Insurance as a perc...

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It is common for owner managers to take income from their own company through a mixture of salary and dividends.

For 2012/13 the maximum salary at which no tax or NI is payable is £7,485.

Although no employee’s or employer’s NI is due on this level of salary, the employee does still receive a full years credit to their state pension record.

The personal allowance for 2012/13 is set to increase to £8,105 (from £7475).

To avoid going into the band at which higher rate tax becomes payable, the maximum figures for 2012/13 are:

Salary                                                         £7,485

Dividend                                                 £31,491

(before tax credit)

If you have paid pension contributions or made gift aid payments, then the amount of dividend can be increased.

Note dividends can only be paid if the company has distributable profits.

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