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28 June 2017

Drawing salaries from multiple companies

With the advent of dividend tax, drawing more than one salary is often advantageous as an alternative to dividends, even if this triggers some personal tax.

As a quick recap, dividends above the £5,000 annual dividend allowance are subject to 7.5% dividend tax, rising to 32.5% once your earnings from all sources exceed the higher rate tax threshold (currently £45,000 per annum).

However, a salary will be subject to 20% personal tax (once other earned income exceeds the personal allowance of £11,500 per annum) providing you are a basic rate taxpayer, but has the added benefit of being tax deductible as an expense of the company, saving Corporation Tax of 19%.

The net tax cost of taking an extra salary is therefore 1%, compared to 7.5% for dividends.

What about NIC? The NIC threshold usually applies independently for each employment, unlike tax which aggregates earnings from other sources. The NIC threshold is currently £8,164 per annum, and therefore you can earn more than one salary of £8,164 without incurring any NIC.

However, where companies are associated with one another these employments need to be aggregated for NIC purposes. While being ‘associated’ isn’t clearly defined in NI legislation it will generally apply where two businesses are financially dependent on one another, or where they operate from the same premises or share employees.

This tip will therefore be of limited use, reserved for business owners with multiple companies working across different sectors and in different locations.

If you would like further advice on this matter then please contact me.

 

Key Facts:

  1. Drawing an extra salary usually triggers 20% personal tax, compared to 7.5% for dividends
  2. But the company saves 19% Corporation Tax on a salary, unlike with a dividend
  3. NIC usually works independently for each employer, allowing multiple salaries with no NIC
  4. But if companies are associated with one another, NIC must be aggregated
  5. Only business owners with companies working in different sectors/locations will benefit

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The Mill, Pury Hill Business Park
Alderton Road, Towcester
Northants, NN12 7LS

emailmail@krwaccountants.co.uk

phone01327 810373

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