Dividends vs Bonuses
From Shipshape March 2017 | Uploaded 10th March 2017
The changes to both corporation tax and dividend income tax rates warrant a fresh look at the options, with each situation really requiring a detailed comparison. However, a simple example looks at a company with £100,000 to pay out. A bonus reduces the profit subject to corporation tax, whereas dividends are a distribution of profit and are paid after allowing for corporation tax.
Assuming the recipient’s existing remuneration means their marginal NIC rate is 2%, and adopting a corporation tax rate of 19% and the 2016/17 tax rates, the results clearly favour a dividend, as shown in the table below.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above. If you would like advice or further information, please speak to your usual Shipleys contact.