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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5113
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My wife and I (Director and Co Secretary respectively) have

Customer Question

My wife and I (Director and Co Secretary respectively) have been drawing dividends but not salaries for the past several years as this reduces our income tax and avoids NIC. We are both of retirement age and drawing our state pensions.
With the new tax treatment of dividends it looks look this is no longer to our advantage, so we are considering paying ourselves modest salaries just below the NIC contribution cut-off point. Is this sensible?
Also, we would like to use some of our accumulated dividends to buy pensions. Is this practicable, or do we have to have future earned income to do this?
Regards JCT
Submitted: 1 year ago.
Category: Tax
Expert: replied 1 year ago.
Thank you for your question. You can still draw dividends post 6 Apr 2016 but only the first £5,000 of dividend income is tax free as it is covered by your dividend allowance.You could draw modest salaries on top of it to ensure you have covered your personal allowance.I would seriously consider a combination of both. You need earned income to put aside some funds into a pension scheme. Dividends don't count as earned income for this purpose. I hope this is helpful and answers your question.If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Expert: replied 1 year ago.
Hi there, just checking to see if I have addressed your points and/or you need further help/clarification. Many thanks