Talk to the Taxperts

01382 312100

Budget 2021 – Are Changes Required To Remuneration Planning?

With the low rates of Corporation Tax which we have enjoyed in recent years, it has been possible for a director/shareholder to extract their remuneration by way of a small salary and the balance in dividends, which often gave a significant overall tax saving.

With the future changes to Corporation Tax rates announced in the Budget, with effect from 1 April 2023, is this planning still worthwhile?

In short, yes, although the benefits will reduce significantly from 1 April 2023, particularly if your company profits are between £50,000 and £250,000, where the highest Corporation Tax rate of 26.5% will apply to profits in this band.

There can be, however, a considerable saving to be made by structuring your remuneration in this way. This could either be utilised to give you more cash, after tax for the same cost to the company, or for companies who may be struggling with cashflow due to the difficult trading conditions of the last year, you could maintain your existing take home income, while leaving more funds in the company.

The savings can be achieved in a number of ways:

  • Paying a low salary gives a saving in Employer’s and Employee’s National Insurance as this is not charged on dividends
  • Personal tax rates on dividends are lower than tax rates on salary
  • Dividends are not taxed at the higher Scottish Income Tax rates, unlike salary
  • PAYE/NIC is paid monthly, whereas tax on dividends will be payable on 31 July and 31 January in any one tax year, providing a valuable cash flow saving

As this may not be the best option for all businesses and individuals, our EQ Taxperts would be happy to discuss your personal circumstances and review your remuneration planning to advise on the best approach for you. You may wish to reassess at 1 April 2023 but for now, the rules remain the same. When considering remuneration planning, other taxes and commercial factors may be relevant, hence taking advice is critical.

Get in touch by calling one of our offices or email [email protected].

Latest News

View all latest news

March 15, 2024

Final opportunity – Urgent planning deadline for the transition to the ‘tax year basis’

Speed read Any individual who is a sole trader or partner in a trading or professional partnership will be taxed under the new ‘tax year basis’, which means…

February 29, 2024

Tax Planning Tips Ahead Of The New Tax Year

With the end of the financial year drawing close, now is the time to evaluate your tax position for the year to 5 April 2024 to ensure that…

Download our EQ app and keep up to date with tax news, changes and have access to our EQ Portal, tax calculators and key tax dates at your fingertips. Click on the relevant button on your device to download our free app.

Visit EQ Accountants Visit EQ Accountants

Explore the full range of EQ Expertise