Jennifer Adams looks at situations where paying a bonus may be preferable to taking a dividend.
Directors can extract monies from a company in various ways, the choice invariably being between a salary or dividend (should the director also be a shareholder); but there may be circumstances that might compel payment via a bonus.
The choice of which method can only be determined by comparing the net amount received after all taxes and National Insurance contributions (NICs) charges have been paid.
Bonus payments
As with salary payments, a bonus is subject to income tax and NICs for the recipient and employer’s NIC for the company (subject to the employer’s allowance). The difference is in the timing of the bonus payment. For directors, payment is the earlier of the following dates:
- When a payment is made.
- When the
