Remuneration planning

For a number of years it has been the norm for the working shareholders of owner managed limited companies to remunerate themselves by a small salary supplemented by regular dividends. Get the balance right and significant national insurance savings can result as well as cash flow advantages from careful timing of distributions. In addition, it is possible to structure the company so that spouses and/or other family members own shares which will allow a wider distribution of the dividends.

There are a number of issues to take into account when considering remunerating by dividend including:

1. Availability of reserves from which to pay the dividend;
2. Ensuring that the dividends are correctly declared;
3. The national minimum wage legislation; and
4. Ensuring that the company does not fall under the special rules applicable to ‘personal service companies’.

The summer budget in July 2015 introduced a new 'dividend tax' of 7.5% on dividends over £5,000 which will come into effect from 6 April 2016. Whilst this reduces the savings that accrue from paying dividends rather than salary, it can still be beneficial.

Please contact-us if you would like to know how this might apply to your situation.