Are You Structuring Your Income Tax Efficiently?
With a new tax year starting on 6th April, now is a great time to reorganise your tax affairs.
If you are a company director shareholder, you have more opportunities than most people to structure your income tax efficiently. Whether you have taken advice before or not, changes to rate bands as well as in your personal circumstances mean there may well be an opportunity to make a few more savings.
The first step is to consider is how much income to take from your company. To answer this crucial question first look at income that is beyond your direct control; things like interest and dividends from investments and taxable profits from rental properties are things to think about. Let us assume the total income from these sources is £4,000.
Next, make sure you are making use of your full tax-free personal allowance. This is set at £11,850 for the 2018/19 financial year. Once the income discussed above has been subtracted from this amount, be sure you take at least the balance in salary from your company – a minimum of £7,850.
In addition, it is also advisable to push this to at least £8,424 which is the amount of salary that can be taking without NI being payable. And then there is a £2,000 dividend nil-rate allowance to consider. Once any dividends from investments has been subtracted from this sum, the balance is the minimum one should take in dividends from your own company.
The chances are that the sum of the above will not be sufficient to cover your annual income requirements and you will need to take more in either salary or dividends. But which route is the best one to take? The simple answer is often to take the balance in dividends if, when added to the other sources of income discussed, you remain in the basic rate band of tax. The associated tax rate on dividends will then remain at just 7.5%.
If you have even the slightest doubt as to whether you are planning your taxable income as efficiently as possible, please get in touch. Call us on 01524 67111 and arrange an appointment to discuss how we can help.
Author: James Cornthwaite ACA CTA
A former pupil at St Aidan’s C of E High School, James attended Blackpool Sixth Form College and Lancaster University, graduating in 2004, gaining BSc. first class honours. He joined Moore and Smalley, Preston in 2005 and qualified as a...
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