Salary vs Dividends – how much is too much? Non-Tax Factors revealed.
You can see our last post covering the potential dangers of the small salary, big dividends tax plan here.
If you want to withdraw money from your company, there are various other non-tax factors that you need to consider.
Not sure how much income to withdraw from your company? Here’s five factors for every business owner:
- Dividend Payout
If you pay yourself a large sum of money (e.g. a bonus or dividend), it can negatively affect the company to successfully continue business operations.
- Company Insolvency
Dividends should not be declared once the company is insolvent or if dividend payments result in company insolvency.
- Low Profit
A payment of a large salary or bonus will not only reduce company profits but also affect the company’s ability to borrow.
- Ability to Borrow
If you follow a small salary, big dividends tax plan then there is a possibility this will affect your ability to borrow money.
There are two ways lenders will deal with you:
- Some will only be interested in your salary and so ignore dividends.
- Some will only be interested in your most recent tax returns and accounts to see if you can repay loans.
- Share Value
Just so you are aware, a dividend that steadily increases over the years may well enhance the share value.
For more information, we provide a Business Consultation to fulfill all your business needs.
We have created several posts surrounding the small salary, big dividends tax planning technique including potential dangers, non-tax factors and National Insurance for further reading here.