Getting less salary means your company might have profit and it leads to eligibility of taking dividends. You may have question about dividends vs salary and need to know which one is the best suited for you?
As being a director and shareholder of a limited company here in the UK, you are entitled to salary and could be dividend as well as. However, everyone has a question which one is the best for them? We can simply say that it depends on your circumstances. Here is a brief comparison in the below to take into your consideration based on your situation.
Dividend is the payment that are distributed to the shareholders based on the proportion of shares and you can pay dividend if the company has profits. You cannot pay dividend if you are not making profit in your company.
Usually, salary is a fixed regular payment in return of the services provided. Being a director and taking regular fixed salary means you are an employee of a limited company, and your salary is subject to national insurance contributions.
On the other hand, you have also a range of pros and cons of receiving dividend from your company.
The benefits of taking dividend: As a shareholder of your company, getting dividend leads to:
The downsides of taking dividend: Getting dividend as a shareholder could downside as the follows:
You have pros and cons of taking salary as being a director of the company.
The benefits of taking salary: There are several benefits once taking salary from your company:
The drawbacks of taking salary: In contrast, getting salary also means some drawbacks including:
There are several factors need to be considered whether you take dividends or salary. Here are few facts that might help on your decision:
Finally, we can recommend that you may choose the combination of both dividends and salary. How much you should take from this option? It depends on your personal circumstances including your regular commitments and future planning.
Our dedicated team here at The Stan Lee, we can assist with certainty on your dividends and salary affairs including free initial advice and self assessment tax return.
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