As the dust settles on the January tax rush, we can now look forward to the rest of 2019, and help our clients make it an even better year for their businesses.
2019/20 Salary & Dividend split
As of 6th April, we enter a new tax year. This means we must start planning in terms of tax savings.
For the 2019/20 tax year, the personal allowance will increase to £12,500 (an increase of £650).
With regards to dividend income, there will remain a tax-free allowance of £2,000 per annum.
Any dividends over this £2,000 will then be taxed at 7.5% (if no personal allowance left and within the basic rate band – up to £50,000) and then a higher rate of 32.5% after this.
How much salary should I take?
Most sole Directors will choose to take just enough salary to earn their National Insurance “stamp”, with any additional funds taken from their company as dividends.
How much you take will depend on whether you can claim the employment allowance (£3,000).
If you are a sole Director with no other employees, then you cannot claim this allowance.
If you have more than 1 person on the payroll, then it is likely you can claim the allowance, but not definite, so please check with us first.
The information below is based on the following assumptions:
- You are UK resident and have no student loan balance
- Your only income is from your Company
- You have a standard personal allowance and have profits in your Ltd Co to take
I can claim the employment allowance
If you can, then the optimum salary level to take is £12,500 per annum (£1,041.67 per month). This will not attract any income tax but will incur some employees NI of around £464 per annum.
I cannot claim the employment allowance
If you are a sole Director with no employees, then the optimum salary level for you could be £8,580 per annum (£715 per month). This would leave £3,920 personal allowance left to take as dividends tax free, plus the £2,000 dividend allowance, meaning total dividends of £5,920 tax free dividends.
Please Note: At the above salary levels, obviously this does not meet the minimum wage rules. Therefore, the salary will have to be classed as earned from Director’s duties, and not contracted employment duties.
Other tax planning ideas
- It may be possible to transfer a minority shareholding to your spouse, so they can also make use of their annual £2,000 dividend allowance
- Increase Company pension contributions – these will be an allowable tax deduction for your Company. Annual pension contribution allowance is £40k.
- Claim a “use of home” allowance – this can still be done when running a Ltd Co. Have a simple rental agreement in place
Some of you may have heard of IR35. If you run a Company, but essentially just use the Company to work for one end customer, this section applies to you, especially contractors/freelancers.
From April 2017 there were new rules introduced which affected those of you whose end customer was in the public sector. These new rules meant that the onus to check fell on the end customer.
However, in October 2018, the government have announced that these changes will also affect those of you whose end customer is in the private sector too. This will be rolled out from April 2020.
If you have any questions, please do get in touch.
Auto-enrolment Pension rates
From 6th April 2019, if you have an auto-enrolment pension scheme for your Company (i.e. if you employee staff who fit the criteria) the contribution rates will be increasing to a minimum of 8%:
- Employer minimum = 3%
- Employee minimum = 5%
New minimum wage
From 6th April 2019, the new minimums will be:
- Living Wage (25+) £8.21
- Minimum wage 21 -24 £7.70
- 18 – 20 £6.15
- Under 18 £4.35
- Apprentice £3.90
Additional services we can offer
To help clients further the financial life, as well as their business, we have a variety of services for you including:
- Bookkeeping Services – If you currently do this yourself and want to just pass on the burden, we have affordable monthly plans to take this off your hands
- Xero health check service – for those of you who do your own bookkeeping on Xero and want quick, one-off peace of mind that it is correct
- Business Planning – A planning session that identifies 12-month goals, 90-day goals and actions, culminating in a dynamic Business Plan.
- Budgets/Forecasts – Do you constantly find you run out of cash and need to know why? Maybe you just want to know what your bank balance will look like over the next 2 years?
- Monthly/Quarterly Business Coaching – A structured 30 or 90-day accountability coaching service to ensure you work towards your business goals
- Life Organiser – A structured central register for you, covering a raft of personal, financial, property, insurance and business details that should be documented and stored securely, designed to provide peace of mind to you that your affairs are in order and properly documented
If you have any questions, or wish to book in a FREE consultation, please get in touch today
T: 0117 440 6439