For many years it used to be more tax efficient for director shareholders to take low salary and high dividends but things have changed.
Over the last 3 years the optimal salary/dividend policy has changed because:
- Higher corporation tax rate of 25% introduced with a marginal rate of 26.5% 1 April 2023
- Dividend tax free band reduced to £500 2024/25
- Employer NI starting point reduced to £5000 2025/26
- Employment allowance increased to £10500 2026/27
- Dividend tax rates increased to 10.75%-39.35% 2026/27
It keeps us accountants on our toes revamping all our models each year!