Tax efficiency - please help with the maths!

[PAULHUNTLEY]

Hi - I'm trying to understand the maths of comparing different ways of paying a company director with salary and dividends. All the advice that it's more tax efficient to pay £12,570 in salary and the rest in dividends, BUT, when I do the maths it suggests the opposite. I'm sure one of you clever people will immediately see what I'm doing wrong. Much appreciated, thank you.

DIRECTOR SALARY £50,000.00 £12,570.00
DIVIDENDS £0.00 £37,430.00


Employers CLASS 1 NICs £6,750.00 £1,135.50
CTax reduction £(10,782.50) £(2604.05)
CTax on profit for dividends £0.00 £7,111.70
Income tax on PAYE income £7,486.00 £0.00
Income tax on Dividend income £0.00 £3969.98
Employee’s CLASS 1 NICs £2,994.40 £0.00


TOTAL TAX AND NI
PAID BY COMPANY AND DIRECTOR £6,447.90 £9,613.13

[PAULHUNTLEY]

All my spaces have been reduced, but that was supposed to be two columns of numbers, one for each case.

[someone]

I'm not familiar with this area and I know the calculation has changed recently but one thing you're missing from your calculation is the NI stamp.

I _think_ the generally accepted best way to remunerate is just enough PAYE to qualify for the NI stamp and then the rest as dividends.

If you already have 35? year of NI under your belt then (I think) you pay slightly less tax if you reduce the PAYE a bit further.


copilot says:
The minimum PAYE salary you need to take as a company director to earn a qualifying NI year is the Lower Earnings Limit (LEL).

For the current tax year, the LEL is:
£6,708 per year
£129 per week
£559 per month

I've not attempted to verify if that is correct!