I am new to the Forum, and wonder if anyone can explain the benefits to me for both the Directors and the Company in the payment of Dividends in relation to salary.
Dividend payments do not attract national insurance contributions but do attract corporation tax. Some companies use them because they can be more tax efficient but the company's accountant would probably have to look at the overall position.
The benefits of paying a dividend over a salary are various, but include the fact that the company saves employers national insurance by not paying a salary, and the director will not pay national insurance on the dividend received. Most directors will want to receive a salary at least equal to their personal allowance to maintain their entitlement to a basic state pension on retirement. Normally taking a dividend is more tax efficient than taking a salary, but this will be dependent on the company and director in question.
