Company Bonus or dividend?
Confused about the difference between a company bonus and dividend? Find out what you need to know.
What’s the difference between a company bonus and dividend?
A bonus is a one off payment made to an employee or director of a company.
Dividends are payments that come from the profit of a company to shareholders.
Tax on company bonus
A bonus and a salary have the same tax implications. You will need to pay income tax on a bonus. National Insurance Contributions (NIC) will depend on whether the bonus is paid to the director of the company or not.
If the bonus is paid to the company director, they have an annual earnings period for NIC. So, whether the bonus is made in one payment or several, the NIC you need to pay will be the same. For the company, it doesn’t make a difference for tax purposes whether the payment is made as a salary or a bonus.
If the bonus is paid to someone who isn’t a director, like an employee, it might be possible to save their NIC by paying a one-off bonus instead of a regular salary.
Tax on dividends
Dividends can only be paid from profits, so if your company is making a loss, you can’t pay dividends. They are normally paid annually.
Dividends have a lower tax than a bonus would. But, they can also only be paid to shareholders. There is a specific process for paying dividends, which includes holding a shareholders meeting with minutes, completing vouchers and keeping records. Unlike a bonus, dividends are managed outside of payroll.
It’s important to know that even the company director can’t get dividends unless they are also a registered shareholder.
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This article was updated June 2022