😉 How do you pay yourself?

🌅 Hello and welcome! 

In this week’s Financial Stuff:

• 🎯 Dividends or Salary?

• 🤔 Diversification

👇 Let’s get started…

Yesterday was the 15th July, and St Swithin’s Day. It rained in Bristol, pretty much all day, so if the tradition is true we are going to see another 40 days of rain. So that’s the summer sorted then.

Thankfully, I’m heading off to Southern France for a week. Marseilles in fact, where (not wanting to be that person) rain is certainly not on the agenda! 😉 

🎯BUSINESS OWNERS STRATEGIES
How to pay yourself from your business

Effectively using salary and dividend strategies to maximise your income and minimise your tax liabilities is a smart move.

As a business owner, you have the flexibility to pay yourself through a combination of salary and dividends.

This strategy can help you take advantage of different tax treatments for each type of income. Here's how it works:

• Salaries are treated as a business expense, reducing your company's taxable profit.

• However, they are subject to Income Tax and both employee and employer National Insurance contributions.

• Dividends are usually paid from current year profits, but can also be paid from retained profits from previous years.

• Dividends attract a lower tax rate compared to salaries and no National Insurance contributions.

So, what is a tax effective combination of director’s salary and dividends?

Let’s look an example for the 2024/25 tax year:

You can pay yourself a salary of £758 per month which is £9,096 a year.

And this is tax free because it is less than the Personal Allowance (£12,570) and there is no National Insurance payable.

You then have scope to pay yourself dividends of up to £41,170 without paying any higher rate tax.

This assumes your company has the post tax profits to cover this.

Taking into account the £500 dividend allowance, your tax liability will be £3,248 on this amount.

It’s always a good idea to check with your accountant because every situation is different and this is just an example.

You also need to remember to set aside the tax that you will have to pay for the dividend income via self assessment.

I have seen too many people forget to do this and then find themselves without the tax to pay on the 31st July or 31st January!

If you’d rather watch than read, click on the image below!

🤔 MARKET INSIGHTS
Diversification

The visible signs of Covid in everyday life are fading - occasionally you see, usually an elderly person, wearing a mask. (The one I saw yesterday had it tucked under his nose, just like the old days).

But the most visible sign is office fashion. In fact men’s suits were taken out of the ‘representative’ inflation basket in 2022. Because if no one is buying them, they’re not representative!

So imagine you had the foresight on this trend away from formal and towards casual back in 2022.

If you had to buy the shares in athleisure super brand Lululemon or ‘stuffy’ Marks and Spencer, who would you have backed?

Shock! Lululemon’s stock has gone sideways, while M&S’s share price has doubled.

There are lots of reasons why Lululemon has struggled, but more interesting is why M&S has thrived.

As a business it does something we investors can learn from.

It diversifies. Really well.

From food to clothing, homeware and even finance. So as their formal wear struggled, the rest of the business kept going, giving the fashion side time to adjust, ditch the formal wear and evolve.

With thanks to the team at 7IM for this insight 🫡 

😎AND FINALLY
This week on Youtube

In this week’s Youtube video I’m talking about the tricky subject of the Tapered Annual Allowance - which reduces the amount you can pay into your pension fund if you are a high earner - take a look and let me know if you have any questions!

That’s all for this week! Hope you enjoyed reading and if you have any questions at all, drop me a note.

Hilary 😎

P.S. GET SMARTER IN LESS THAN 5 MINUTES!
I upload a super short helpful financial video on YouTube every week - you can check out my channel here!

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