Chris Thorpe looks at company remuneration and highlights some potential pitfalls.
When a company has been incorporated, the first thought by the owner is often how one pays oneself. Proper remuneration planning can help mitigate the effects of perceived double taxation of corporation tax for the company and personal tax for the shareholders or directors.
Dividends vs salary
The usual method of extracting profit is to declare a PAYE salary for the directors (who may also have an employment contract to warrant a larger salary and pension – commensurate with their duties), with the shareholders (often also directors) taking dividends.
Whilst the salary is subject to National Insurance contributions (NICs), it is deductible for the company against corporation tax; dividends are subject to lower rates of income tax but are not subject to NICs. However,
