Peter Rayney reviews the current tax costs of taking bonuses and dividends.
For many years, the vast majority of owner-managers have been taking dividends to extract surplus profits from 'their' companies, whilst also drawing a reasonable monthly salary. Further tax savings have often been made by passing some (ordinary) shares to their spouses and paying them appropriate dividends.
However, the cumulative effect of the recent tax changes means that dividends may no longer be the preferred extraction route for ‘surplus’ profits. The overall tax costs for bonuses and dividends now depend on the precise circumstances of each case
