Key information for limited company owners, the new Fair Payments Code has now launched, and pensions rules for seasonal staff – are you up to date?
Today we ensure company owners are getting the most out of their profits for the next financial year, Labour’s new Fair Payments Code was launched last week to try and tackle late payment problems and we help you navigate pensions for your seasonal staff.
Salary vs dividends: The best way to extract profit in 2025/26
If you trade as a limited company, then you will likely know that balancing salary and dividends is key to extracting profit from your company in the most tax-efficient way. Both methods have distinct implications. and the right mix will depend on your specific circumstances.
The Autumn Budget, with its changes to employers national insurance rates and the employment allowance has further complicated the picture.
Here we set out some of the factors you need to keep in mind.
Salary: What to consider
A salary is a straightforward way to pay yourself from your company, and it offers a few advantages. However, it also comes with specific tax and national insurance obligations.
Here are some of the advantages:
- Eligibility for state benefits: Taking a salary is a way of ensuring that you qualify for state benefits, such as the State Pension. However, the salary needs to be above a minimum level for this to apply.
- Tax-deductible for the company: Salaries are treated as an allowable expense for your company and so reduce your company’s corporation tax bill.
There are disadvantages though:
- Salaries are subject to both income tax and national insurance contributions. Depending on the salary amount, the overall tax burden can be higher than other methods.
- Your company may need to pay employers national insurance contributions on your salary.
- Salaries have to be processed through PAYE (Pay As You Earn), which means your company will have some additional compliance and reporting responsibilities.
Dividends: What to consider
Dividends are another popular way for small business owners to withdraw profits from their company.
Here are some of the advantages:
- Dividends are not subject to national insurance contributions, which can make them tax-efficient. However, dividend tax and corporation tax rates have eroded this advantage.
- Unlike salaries, dividends don’t require PAYE processing. They must still be properly documented, but generally this is much simpler to do than operating PAYE.
Dividends are paid from post-tax profits, meaning the company must have sufficient retained earnings to be able to distribute dividends. Also, an over reliance on dividends could reduce your contributions towards state benefits.
The combined approach
Many business owners find that a combination of salary and dividends offers the best balance. For example, a modest salary can ensure your eligibility for state benefits while minimising the national insurance you pay. Dividends can then be used to supplement that income in a tax-efficient manner.
The exact split will depend on your personal circumstances.
If you would like help determining what the best approach is for extracting an income from your company in 2025/26, please give us a call. Our expert tax team have tools to assess the optimal balance and will be happy to help you minimise your tax liabilities and support your long-term financial wellbeing.
New Fair Payments Code launched
The government’s promised new Fair Payments Code was launched last week to try and tackle late payment problems that can be particularly harmful to small businesses.
How will the Fair Payment Code help?
The code introduces a gold, silver, and bronze system that smaller firms can use to identify business partners who have made themselves accountable to pay fairly and within certain time limits.
The three award tiers have the following requirements:
- Gold award: for businesses paying at least 95% of all invoices within 30 days.
- Silver award: for businesses paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days.
- Bronze award: for businesses paying at least 95% of invoices within 60 days.
Businesses that are granted an award also agree to abide by the principles in the Code of being “Clear, Fair and Collaborative” with their suppliers.
The awards, once granted, last for two years and then have to be reapplied for at the conclusion of that time. There will be a “robust” complaint system so that businesses who don’t meet the requirements of their award, or otherwise comply with the principles in the Code, can be reported.
Dealing with late payments can be a challenge to deal with. While the new Fair Payments Code may help, there are a variety of methods you can use to help reduce the effect of late payments. If you need practical help in how to improve how quickly your business is paid, please get in touch and we would be happy to help you.
See: https://www.smallbusinesscommissioner.gov.uk/fpc/
Are you employing seasonal winter staff?
In the run up to the winter holidays, you may be considering taking on additional temporary staff to help with the workload. While these staff may only be with you for a short period, you still need to consider them for pension purposes each time you pay them.
Staff need to be put into a pension scheme based on their ages and how much they earn. This applies to family members too.
Generally, any staff that are aged between 22 and State Pension age and earn more than £192 a week or £833 a month, need to be put into a pension scheme that you pay into.
Your payroll software can be a big help if it is capable and set up for automatic enrolment as it will assess staff each time they are paid.
The Pensions Regulator has provided an online tool that you can use to work out what legal duties apply to you and what you need to do.
If you are unsure about handling payroll for seasonal staff, please get in touch with our expert payroll team who will be happy to help you.