If you run your own limited company, you will typically pay yourself a salary and draw down any retained profits as dividends.
Scroll down for further advice on choosing the most tax-efficient salary, plus some explanatory notes.
Limited company dividend calculator for the 23-24 tax year
- There is a Dividend Allowance that applies to the first £1,000 of dividend income. This is reflected in the ‘Your Total Taxable Income’ cell in the calculator.
- The tax rates used in the calculator apply to England and Wales.
- We have excluded the Employment Allowance from the calculator for simplicity, as sole director companies are ineligible to claim. You may be able to claim if you have 2+ employees (including directors).
How are salary and dividends taxed?
The personal allowance for 2023/4 is £12,570. Assuming you are eligible to receive the total amount, there is no income tax due on salaries paid up to this threshold.
Class 1 Employers’ NICs – 13.8% on income over £9,100 (Secondary Threshold).
Class 1 Employees’ NICs – 12% on income between £12,570 and £50,270, and 2% over £50,270.
Dividends incur dividend tax – which is levied according to the tax band you sit within. This is collected via the annual self-assessment process.
Dividends – further considerations
You must only ever distribute dividends if there are sufficient retained profits in your company accounts. If you overpay dividends they could potentially be classed as ‘ultra vires’ (illegal), incurring the wrath of both HMRC and your accountant.
Most businesses now use online accounting software, such as FreeAgent and Xero.
Assuming you have kept your accounts up-to-date, and reconciled with your bank account, you should have a precise indicator of the amount of dividends you can legitimately draw down from your company at any one time.
If in any doubt whatsoever, ask your accountant.
Tax-efficient protection for directors
- Relevant Life Cover - pay via your limited company - save up to 50% compared to funding premiums personally
- Income Protection - protect your income if you're unable to work due to illness - tax deductible via your company
- Professional Indemnity insurance for professional contractors - from just £13.50 per month via Qdos