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For the majority of Small to medium sized Business, it is by now a standard strategy to make use of dividend rather than high bonuses in order to help save taxes for the working investor. This particular strategy can apply in instances where the lower rate of corporation tax applies. Any savings in connection with this results via the fact that National Insurance is normally due on salaries however, not dividends.
Without salaries, there is going to be zero NI . Consequently the question is why then pay a salary in any respect? Why not just pay all of it out as dividend and prevent the National Insurance trap altogether? Basically the answer is in what we receive by paying NI.
Much of our National Insurance Contribution has an effect on our entitlement to state benefits for instance state pensions, statutory sick pay, maternity , statutory paternity pay, etc.
One thing with NI and the benefits people get out of it is that the amounts are not directly proportional. Even so your contributions are actually directly proportional to taxable earnings.
Thus, after a particular level of National Insurance , virtually no further added benefit could accrue by additional payment. Often the optimum amount of earnings needed to attain that highest benefit amount is determined by personal situation.
Company owners, much like every one else require money on a regular time frame. Having worked out exactly what annual earnings a person will need, you want to make up the remainder with dividend. When setting the monthly dividend level, it is .
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