Bonus or dividend? It’s an age-old question that we’re often asked by business owners. In fact, you may recall our article from earlier this year, which explained how the April 2023 Corporation Tax changes meant that in some cases, it may be more tax efficient for a business owner to pay themselves a bonus, rather than taking a dividend out of their profit. 

However, in November, the Chancellor announced a 2% cut to the main rate of primary Class 1 National Insurance (NI) contributions (from 12% – 10%) from 6th January onwards. Given that a bonus is subject to Income Tax and NI, the upcoming main rate NI cut will, in some circumstances, slightly boost the net receipt of a bonus – perhaps even more so, making it the beneficial option. With this in mind, if you are considering paying a bonus that would be subject to the main NI rate in the coming weeks, then you may wish to wait until 6th January, to benefit from the lower NI rate. 

It is important to remember that the tax exposure will depend on the company’s taxable profits and your individual tax position. With this in mind, we would recommend seeking advice for accurate guidance on the most tax efficient method of extracting cash from a company. 

The above is general advice; if you have any queries about this topic, please contact Joel Calitchi: joel.calitchi@mgr.co.uk. 

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