Subject: Seeking Guidance on Ownership Split Compensation Strategy
Hi everyone,
I recently consulted my accountant regarding my business’s ownership structure, which is divided 80/10/10. While I appreciate their insights, I have a feeling that their suggestions may lean more towards simplicity than tax efficiency.
To clarify, my ownership arrangement entails that I receive 80% while the other two directors each take 10%. This setup is primarily for any potential sale, especially since the other directors have invested all the capital.
I’m looking for advice on how to best compensate myself under this structure. My accountant proposed the following monthly distribution for a release of funds, for example, $10,000:
– My compensation: $7,000 salary and $1,000 dividend
– Compensation for each of the other directors: $1,000 dividend
Is this a sound strategy, or is it just the simplest solution? I can’t shake the feeling that there might be a more tax-efficient option we could explore.
I would greatly appreciate any insights or suggestions. Thanks in advance!
One Comment
It’s great that you’re considering the tax implications of how you pay yourself and structuring your ownership. Here’s a breakdown of the considerations:
Salary vs. Dividends: The approach suggested by your accountant—paying yourself a salary and taking dividends—can indeed offer some tax efficiency. By having a portion of your income as dividends, you’re likely to benefit from a lower tax rate on those dividends compared to salary income, which is subject to income tax and National Insurance contributions.
Salary Amount: The salary aspect (7k in your example) should ideally be at a level that aligns with what you’re doing for the business and is compliant with any requirements regarding minimum wage or director’s pay. You also need to consider the impact on National Insurance and how much of your income you want to be subject to personal income tax.
Dividends: Taking 1k as dividends is fine, but you should ensure that the company has enough retained earnings to distribute dividends legally. The amount of dividends you can take might be limited if the company’s profits are lower than expected.
Tax Efficiency: It’s worth consulting with your accountant about the potential of different scenarios:
If there are other tax-efficient ways to structure your compensation that may be beneficial based on your personal tax situation and the business’s financial health.
Long-term Considerations: Factor in the long-term implications of your ownership and how it affects future sales or investments. You may want to ensure that how you pay yourself does not inhibit potential growth or future capital events.
Overall, the approach from your accountant seems reasonable, but it’s always good to explore various options to maximize tax efficiency. If in doubt, getting a second opinion or more tailored advice specifically considering your financial and business landscape may be beneficial. TIA!