It’s that time when the Christmas financial hangover hits and your self-assessment bill is on the way, so you might need a little extra from your company to get you through. What are the most tax-efficient options?
As a company owner manager, if you’re looking for financial help from your company, broadly you have three choices: salary, dividends or benefits in kind. If it’s cash you need it has to be the first two.
Comparison
As a rule of thumb, salary in excess of the NI threshold (£9,100 for 2024/25) is the least efficient option compared with dividends, which are usually the most tax efficient despite successive strikes by the government in recent years to reduce their advantage.
Tax-free or taxable
Benefits can be liable to tax and NI (employers’ only) or wholly exempt. Taxable benefits are more tax efficient than salary of an equal value but in most circumstances less efficient than dividends. Conversely, tax and NI-exempt benefits are more tax efficient than dividends.
A drawback of benefits is that they aren’t in cash. Therefore, they work best when used to replace an expense you would otherwise have to meet from your cash resources, e.g. bank account.
Limited choice
While there’s a wide range of exempt benefits, only some are suitable as an alternative to dividends, e.g. mobile phones, pension contributions, pensions advice, some childcare costs, bikes under the cycle-to-work scheme, benefits costing up to £50 and a few others. A full list of tax and NI-free benefits are listed on HMRC’s website