Dividends now more tax efficient than a bonus

Deciding whether to pay a bonus or a dividend has been a regular part of a company's annual tax planning review over the past few years. The general rule in recent years has been that a dividend was more tax efficient except where the level of profits meant that marginal rate corporation tax was payable (ie profits between £300K and £1.5M). However the reduction in the main rate from 30% to 28% and the reduction in the marginal rate from 32.5% to 29.75% means that the payment of a bonus now obtains less tax relief. Therefore dividends are now preferred even where corporation tax is payable at the marginal rate. Note though that other issues such as the minumum wage rules and the impact on pension contributions should still be taken into account.