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Changes in 2023/24 affecting the remuneration strategy for directors
There are very few changes for the 2023/2024 tax year which starts on 6th April other than the reduction in the dividend allowance down from £2,000 to £1,000. The personal allowance has remains at £12,570 and the basic rate band unchanged at £37,700. The Employees NI threshold remains at £12,570 and Employers NI threshold at £9,100.

So an annual salary (including bonuses) of £9,100 (or £758 monthly) will still mean neither you nor your company will pay NI, but the good news is you will still receive a full years NI credit to your state pension records.

The employment allowance will remain at £5,000. This means that if you have more than one salaried director you could both receive £12,570 in 23/24 without paying any tax or NI if your company is eligible for employment allowance. If there are other employees but where the employer’s NI paid on their gross pay is less that £5,000 then it may be tax efficient for you to increase your salary to £12,570 per annum but only if you have no other income that will mean you go into the higher rate tax band (total income less than £50,270)

Top up in dividends
As a salary of £9,100 or £12,570 per year isn’t going to pay the bills, you will want to top this up with income which doesn’t count for NI purposes. Usually this means dividends, so you should pay regular dividends, say quarterly, at the most tax efficient level; this will depend on the tax free allowances and rate bands available to you.

Tax paid on your dividends

As noted above the amount you are able to take as a tax free dividend reducing from £2,000 to £1,000. However, the tax rate for dividends are remaining the same as last year; 8.75% (within basic rate band), 33.75% (within higher rate band) and 39.35% (in the additional rate band).

So a director who now takes a salary of £9,100 and dividends as detailed below (with no other income) will have the following personal tax to pay;

Tips

Where you have other tax deductible allowances or reliefs, such as those given for personal pension contributions, you can increase the amount of dividends the company pays you and yet remains tax efficient.

• Ensure that your company is registered for payroll with HMRC and submits its RTI monthly to HMRC in advance of salary payment to ensure that you do not incur any penalties. JLA Accounting can help you with this.

Trap
Dividends can only be paid from company profits and so the low salary, high dividend strategy can’t be used where the company does not have sufficient profits to distribute.

Scotland

The Scottish Government have introduced different tax rate bands for the 2023/24 tax year so if you are a Scottish tax payer then the personal tax amounts may differ for you.

The effects on you and your business of the dividend rules can be complex so it is worth seeking tax advice to ensure you have the most tax efficient strategy in place. If you have any questions on this article and how it affects you and your business, please get in touch.

JLA Accounting Limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by JLA Accounting Limited.