Salary or Dividends

One of the many reasons for setting up a limited company is to benefit from the tax advantages of paying yourself a mixture of a salary and dividends.

Dividends attract no National Insurance payments, so they can be a tax-efficient way of distributing the profits from your limited company. However, unless you have income from other sources, it could be advantageous to pay yourself a salary that utilises your personal allowance – the amount you can earn before you pay tax.

The most tax-efficient way in which to withdraw money from your company will depend on your other sources of income, your age, and your profits. You need to make sure that you continue to contribute to National Insurance while ensuring that you do not pay any more than you need to.

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