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Changes to taking money out of your company 2016-17

This is the annual update for the amounts to withdraw from your company.

The changes to dividend tax means that most business owners be rewarded in dividends will pay more personal tax from 6 April 2016.

Current Position

For the 2015/16 tax year we advised a director / shareholder to take the following ‘optimum’ monthly amounts out of their personal company:

  • Salary          £883.33 a month or £10,600 a year
  • Dividend £2,383.87 a month or £28,606.50 a year

These amounts gave a small employee’s national insurance to pay on the salary of £325.12 but utilize the full increase to personal allowances to £10,600 per annum.

This will give net income after national insurance of £38,881. You will have no personal tax to pay assuming you have no other sources of income.

These amounts are effectively doubled for ‘husband and wife’ companies.

Revised amounts from 6 April 2016

There were substantial changes to the taxation of dividends from 6 April 2016. The changes make dividends paid above £5,000 a year taxable.  The starting rate is 7.5% increasing to 38.1% high earning individuals.

Our suggested amounts of salary and dividends to take are:

  • Salary               £916.66 a month or £11,000 a year
  • Dividend of £2,666.67 a month or £32,000 a year.

Whereas in past years our recommended amounts would have given no tax bill, due to the changes to the dividend tax the above  amounts will give an annual tax bill of £2,025.

HMRC has not yet published the national insurance rates for 2016/17 but based on the current amounts a salary of £11,000 would give a personal national insurance bill of £352.80.

This will give net income after tax and national insurance of £40,622

These amounts are the ‘default‘ advice for the vast majority of our clients.  Again if a company is owned with your spouse, these amounts can be doubled.

You can of course take more from your company but extra dividends, salary or benefits will give you a higher tax bill, you may also pay extra tax if your household is in receipt of child benefit.

The dividend tax changes are quite complicated, further details can be found on this by clicking on my blog dated  20 July 2015 see >> here

Please contact me if you have any questions.

Andrew Scott

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