As of 6th April, we enter a new tax year. This means we must start planning in terms of tax savings, especially dividend and salary levels.
For the 2018/19 tax year, the personal allowance will be £11,850 (an increase of £350).
With regards to dividend income, there was a tax-free allowance of £5,000 per annum. However, from 6th April 18, this will unfortunately decrease to £2,000.
Any dividends over this £2,000 will then be taxed at 7.5% (within the basic rate band – up to £46,350) and then a higher rate of 32.5% after this.
How much salary or dividend 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.
I can claim the employment allowance
If you can, then the optimum salary level to take is £11,850 per annum (£987.50 per month).
I cannot claim the employment allowance
If you are a sole Director with no employees, then the optimum salary level for you will be £8,400 per annum (£700 per month).
Please note – Both options are based on the idea that your only income is from your Limited Company and you have no other income sources.
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
- Claim a “use of home” allowance – this can still be done when running a Ltd Co. Have a simple rental agreement in place
If you have any questions on any of this information, feel free to contact us!
If you would like more tax planning tips, follow us on social media, and keep an eye on our blog (via the website) as we will soon be releasing regular tips & tricks.[/vc_column_text][/vc_column][/vc_row]