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It’s a good idea to think about whether you have fully maximised the amount you can withdraw from the company tax free and at the basic rate of dividend tax. Assuming your company makes sufficient profits, the total tax free amount you can withdraw, not including other sources of income and using our recommended low wage/higher dividend split, is £14,570 per financial tax year. You can take a further £35,700 of dividends at the 8.75% dividend tax rate and before the higher rate of 33.75% is charged.
• For a salary of £9,096 (£758 per month), dividends of £41,174 will take you to the higher rate tax threshold.
• For a salary of £11,904 (£992 per month), dividends of £38,366 will take you to the higher rate tax threshold.
• For a salary of £12,570 (£1,047.50 per month), dividends of £37,700 will take you to the higher rate tax threshold
All salary / dividend splits above will incur an estimated £3,123.75 personal tax liability due 31st January 2024, not considering the payments on account and additional income and expenses. If you have additional income such as rental income or other employment income, this will reduce the amount of dividends you can take, before higher rate tax is charged.
Final dividends MUST be paid prior to the 5th April 2023 or they will not be included in the current financial years calculations and you may lose certain allowances.
In most scenario's it makes sense to withdraw as much money from the company at the lower tax rates, rather than let any reserves build up for a future year as your circumstances can easily change, as can the tax rates. However, there are certain things that will reduce or restrict the tax free allowance of £14,570 and the additional basic rate dividends of £35,700.
You must have sufficient reserves in the company, before making dividend payments.
Please see our detailed guide for further information on what dividends are and how are they are taxed or get in touch and we will advise
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