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Salary v dividend

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance

Salary v dividend

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance
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For company owners, most on-going remuneration requirements will usually be met in the form of a combination of regular salary, bonuses or dividends. Although tax will be an important factor in determining the necessary combination, it will not be the only one; non-tax matters will often have more importance.

Non-tax considerations

The composition of a proprietor’s remuneration package should be considered carefully to try to achieve the most tax efficient result possible. Tax is, as usual, not the only consideration; the following must be taken into account in tax planning for a proprietor’s remuneration:

  1. •

    ensure sufficient distributable reserves for payment of dividends, not only to satisfy immediate requirements but also taking into account future plans

  2. •

    requirement for shareholder / external investor approval under terms of Company’s Articles of Association / Shareholder’s agreements, etc

  3. •

    regulatory / industry requirements and guidelines relating to director’s remuneration

  4. •

    Companies Act requirements regarding declaration and documentation of dividends

  5. •

    timing and mechanics of payment of tax (see further guidance below)

  6. •

    the application of the National Minimum Wage Act (see further

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