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Where Taxpayers and Advisers Meet

Nil-rate Dividends or Pension Payments for greatest tax efficiency?

Joined:Wed Nov 30, 2022 10:06 pm
Nil-rate Dividends or Pension Payments for greatest tax efficiency?

Postby lookingforanswers » Wed Nov 30, 2022 10:22 pm

Hi, not sure if this is on the right board so apologies if not.

I've run a small limited company for several years, predominantly to build up a pension pot, and I've now started to let it wind down naturally. I draw the maximum salary under the secondary threshold, pay £1200 per month into my pension via the company and have so far been drawing nil rate dividends each year to the maximum allowed.

This year I've reached the point where, after direct wages and operating expenses, I'm just about at break-even point but still on target to pay my salary plus the £1200 per month pension. No dividends have been paid out yet this financial year and a surplus has accrued in the business current account. My query is:

1. is it more tax efficient to draw maximum nil-rate dividends or let the company pay it into my pension
2. if and when my operating expenses (inc my salary and pension payments) exceed my gross profit, which would be best to reduce first, salary or pension contribution?
3. should I just leave the current account surplus where it is so that as and when things wind down further and there's not enough to cover overheads, it can gradually be used up?

Many thanks in advance of your advice.

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