Ltd Company Health Dashboard

The two most common options are £9,100 (the employer NI threshold, which avoids any employer National Insurance) or £12,570 (the personal allowance, which uses your full tax-free income but triggers a small employer NI cost). For most company profits below £50,000, the £12,570 option is marginally more tax-efficient because the income tax saving outweighs the employer NI cost. Above £50,000 profit, the difference narrows and you should model both.

Companies with profits up to £50,000 pay the small profits rate of 19%. Companies with profits over £250,000 pay the main rate of 25%. Between £50,000 and £250,000, marginal relief applies, creating an effective rate that gradually increases from 19% to 25%. If you have associated companies (e.g. another company controlled by the same person), the £50,000 and £250,000 thresholds are divided by the number of associated companies.

Dividends have a £500 tax-free allowance. Above that, they are taxed at 8.75% within the basic rate band, 33.75% within the higher rate band, and 39.35% at the additional rate. Dividends are taxed after your salary, so they fill up the remaining tax bands. This is still significantly lower than the equivalent income tax and NI rates on salary, which is why the salary-plus-dividends strategy is tax-efficient.

If your spouse is a genuine shareholder with a real stake in the company, splitting dividends between you can save significant tax by utilising both personal allowances and keeping more income in the basic rate band. However, HMRC has anti-avoidance rules (known as the settlements legislation) that can challenge this if the shares do not carry real commercial rights or if your spouse has no genuine involvement. Always seek professional advice.

Your company can make employer pension contributions which are fully deductible against corporation tax, with no National Insurance payable on them. The annual allowance is £60,000 (or 100% of your earnings if lower). You can also carry forward unused allowance from the previous three years. Company pension contributions are one of the most tax-efficient ways to extract profit from your limited company.

Dividends should be declared at board meetings and documented with proper minutes and dividend vouchers. Most directors pay dividends quarterly, aligned with the accounting year. You must have sufficient distributable reserves (retained profits) to pay a legal dividend. Declaring dividends from profits that do not exist is illegal and can make you personally liable. Always check your profit position before declaring.

Marginal relief applies to companies with profits between £50,000 and £250,000. Instead of jumping from 19% straight to 25%, the effective rate increases gradually. The formula reduces your tax bill so that companies just above £50,000 pay close to 19%, and the rate smoothly increases to 25% as profits approach £250,000. The effective marginal rate in this band is actually 26.5%, meaning each extra pound of profit between £50k and £250k is taxed at 26.5%.

The health score considers five factors: tax efficiency of your salary and dividend split (0-25 points), pension contributions (0-15 points), profit level as a margin indicator (0-20 points), estimated cash reserves (0-20 points), and IR35 risk assessment (0-20 points). A score above 75 is excellent, 50-74 is good, and below 50 needs attention. The score helps identify areas where you could improve your company financial health.

For each dividend payment you must keep: board minutes recording the decision to declare a dividend (including the amount per share and the payment date), a dividend voucher for each shareholder showing the company name, date, shareholder name, number of shares, dividend per share, and total amount. You should also maintain a running record of distributable reserves to prove the dividend was legal. Keep these records for at least six years.

A limited company director on £80,000 profit typically pays around 25-30% effective combined tax rate (corporation tax plus dividend tax plus any salary tax), compared to approximately 33-35% effective rate for an equivalent PAYE employee (income tax plus employee NI). The savings come from the lower dividend tax rates, no employee NI on dividends, and the ability to control the timing and amount of income extraction. The gap narrows at higher income levels.