2017/18 Dividend Payment Examples – Basic Rate Band

April 11th, 2017

Table 1.1 Salary Only

£

Salary + Dividend

£

Gross profit 50,083.37 53,640.54
Employer NICs  (5,083.37) Nil
Salary 45,000.00  8,164.00
Corporation tax Nil (8,640.54)
Dividend Nil 36,836.00
Gross income 45,000.00 45,000.00
Dividend allowance (5,000)
Personal allowance (11,500) (11,500)
Taxable income    33,500  28,500
Employee NICs  (4,420.32)     Nil
Income tax  (6,700.00)  (2,137.50)
Net income 33,879.68 42,862.50

 

In this example, the dividend route benefits from both the £5,000 dividend allowance and the £3,336 of unused personal allowance. As explained in the earlier bulletin, suffering 19% corporation tax on the dividend is better than no income tax, but 25.8% employer/employee NICs, of which only the employer’s is tax-relieved. The extra net income comes with a greater slice of the profit. If the gross profit is kept the same for salary and dividend, the table looks like this:

 

Table 1.2 Salary Only

£

Salary + Dividend

£

Gross profit 50,083.37 50,083.37
Employer NICs  (5,083.37) Nil
Salary 45,000.00  8,164.00
Corporation tax Nil (7,964.68)
Dividend Nil 33,954.69
Gross income 45,000.00 42,118.69
Dividend allowance (5,000)
Personal allowance (11,500) (11,500)
Taxable income    33,500  25,618.69
Employee NICs  (4,420.32)     Nil
Income tax  (6,700.00)  (1,921.40)
Net income 33,879.68  40,197.29