by Acuaccounts | Nov 1, 2018 | accounting
The following is for illustration purposes only and should not be relied upon for your tax planning or tax affairs. As usual we like to keep things simple, not much has change for 2018/ 2019; just a small change to the national insurance limits and the Dividend Allowance reduces to just £2,000.
Salary
From April 2018 (and not before) you can pay a salary of £702 / month without paying any tax or NI. If you choose this option:
- You do get National Insurance Credits towards some benefits for example state pension
- You must be registered as an employer
- You have to file an RTI (real time information) through the Payroll
- No income tax or national insurance is due on a salary at this level
- This is a perfectly legal and an acceptable way of paying yourself from your company, in fact HMRC have been known to state that they do not have a problem with this approach
Dividends
From April 2018(and not before) any dividends paid over £2,000 will attract dividend tax.
The rates of tax will be:
- First £2,000 of dividends – tax free
- 7.5 % for dividends falling within basic rate tax (caution on how this is calculated)
- 32.5% for dividends falling within higher rate tax (which will be over £46,350 from April 2018)
- 38.1% for dividends falling within the additional rate of tax with income over £100,000 meaning restrictions on your personal allowance
How to work out your dividend tax
The calculations assume that you have no other income.
You would pay a salary of £702 x 12 from the company = £8,424
You can then pay £2,000 plus the remainder of your personal allowance as dividends without any tax = £2,000 + (£11,850 personal allowance less the salary of £8,424) = £5,426.
So a total of £13,850 will be tax free (dividend allowance + personal allowance).
Note – this is per person.
You will pay tax after £13,850!
Tax at 7.5%
For the next £32,500 of income you will pay tax at 7.5%.
So you can take
- a salary of £8,424
- dividends of £5,426 + £32,500 = £37,926
- Total income of £46,350
- Dividend tax due on this will be (£32,500 x 7.5%) £2,437.50
Tax at 32.5%
Dividend income over £37,926 will attract tax at 32.5%.
If your income exceeds £100,000 you should obtain a personalised illustration as your personal allowance is restricted at that level.
Dividend tax rule of thumb
The dividend tax rule of thumb to use is:
- take a salary of £8,424
- tax free dividends of £5,426 to use up the remainder of your personal allowance
- £75 of tax per £1,000 of dividends from £5,427 up to total dividends of £37,926
- £325 of tax per £1,000 of dividends over £27,927
- If your income exceeds £100,000 then give us a shout as this becomes complicated!
Notes
- Dividends are paid out of after-tax profits.
- Everyone has different tax affairs, the above is for illustration purposes only and should not be relied upon for your tax planning or tax affairs.
- Get your calculation checked with an accountant to make sure you have a tax plan that suits you.
- Operating as a limited company is perfectly legitimate and is purely a business choice.
- Salary is an allowable business cost and will reduce the profit subject to corporation tax.
by Acuaccounts | Oct 22, 2018 | latest news, tax
With the ever-changing tax laws the life of a limited company business owner has become more complex in recent times. So, keeping on top of submissions and due tax dates are ever more important.
Failure to meet deadlines will result in automatic penalties and could even mean your company gets closed down. Furthermore, HMRC are becoming stricter in terms of money owed for taxes with interest, surcharges and debt collectors as well!
What are the main filing deadlines?
Limited Company
Company accounts – to be filed at Companies House 9 months after the year end but beware as this is different for the first accounts.
Confirmation Statement – previously known as the Annual Return this must be filed at Companies House on the anniversary of incorporation
Corporation tax – payable 9 months and one day after the year end
Corporation tax return – to be filed at HMRC 12 months after the year end
Directors / Self-Assessment
Self-assessment tax returns – Personal Tax Year run from 6th April to 5th April every year. Returns must be filed by 31 January for the previous tax year
Payroll
PAYE – Paid monthly and due the 19th of each month
VAT
VAT Returns – filed and paid quarterly, 1 month and 7 days after the quarter end
Do not underestimate the amount of effort required to get your accounts together, finalised and filed. Unfortunately, it isn’t a five-minute job, leaving things until the last minute means that there are more likely to be complications and there is no time or allowance for the unexpected.
by Acuaccounts | Oct 16, 2018 | Loans
Directors Loans can cause tax complications which many small business owners are unaware of. In fact, they often only come to light when accounts are prepared, and it is realised that the owner/director has withdrawn more cash than taken in the form of dividends.
The actual making of the loan does not trigger any tax charges though care should be taken that the loan is not treated as a salary payment. If it is be treated as salary, then PAYE must be applied at the time the funds are made available to the director. So be careful in your descriptions of the withdrawal.
Then there are tax consequences for the period that any directors’ loans are outstanding. The director will incur a benefit in kind charge if the loan exceeds £10,000 at any time during the tax year. If the director pays interest to the company the benefit can be reduced and even eliminated but there are certain conditions attaching to this. The company itself will have what is known as a section 455 liability (based on the section of the relevant legislation) if the loan remains outstanding for more than 9 months and 1 day after the end of the accounting period in which the loan is made. The s455 tax will be applied and at the current rate of 32.5% of the amount of the loan outstanding at that time.
If the loan is repaid by the director/shareholder, the company will obtain a refund from HMRC of the s455 tax that has been paid. This is repayable 9 months and 1 day after the end of the accounting period in which the loan is repaid. So, you end up making a lengthy interest-free loan to the government! In recent years the introduction of specific anti-avoidance legislation has tightened up the loan rules.
Company law states that a company making directors loans must seek the approval of its shareholders though there is an exception to this if the loan is less than £10,000. Technically, the company may require immediate repayment of the amount borrowed but that is unlikely to happen with a small owner-managed company. If the loan is later written off, then further tax implications arise. The director/shareholder is treated as receiving a dividend equal to the amount of the loan which is charged to income tax. The amount written off is also subject to Class 1 NIC.
HMRC are trying to discourage companies directors loans, especially if the company is in financial difficulty. The best way in our opinion is to keep your accounting records up to date so that you know how much you can withdraw safely from the company at any time.
by Acuaccounts | Oct 11, 2018 | accounting, latest news
Plans have been revealed that the Treasury is due to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions. The move will be targeted at people who set themselves up as private Limited companies to take on work.
As announced on the BBC today, this reform could be announced in the October Budget.
The Treasury believes a third of people claiming self-employed status as a “personal service company” are actually full-time employees and should be paying more tax. It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.
It is now looking at demanding that firms which use personal service company contractors take legal responsibility for ensuring “off-payroll” contractors stick to the tax rules known as IR35. A similar move in the public sector on “synthetic” self-employed has raised £410m extra in taxes since 2016, HMRC estimates suggest.
Full employees pay higher levels of national insurance compared with these Contractors. Personal income tax allowances could be frozen, despite a Tory pledge at the 2017 election that they would rise to £12,500 for lower rate taxpayers and £50,000 for higher rate taxpayers by 2020. Freezing them could raise up to £2bn a year. Reform of the IR35 rules is questionable whether it would raise as much.
Source – BBC UK News https://www.bbc.co.uk/news/business-45822650
by Acuaccounts | Oct 10, 2018 | accounting, latest news
Penalties for Filing a Tax Return late have remained pretty much the same for the last 20+years. Filing a date late beyond the 31st January, there will be an automatic £100 fine. Fail to file in another six months a further £100 is added. The real penalty was in the 5% charge that HMRC could charge if you had not paid a month after the deadline.
However, this is now likely to change. Under the new Making Tax Digital regulations that will form the basis of the Budget later this year. It has been drafted that HMRC has outlined a significant change to the way they will be levying tax return penalties for late filing breaches under the new regulations. Rather than base penalties on each return, taxpayers will receive a penalty point per event, and when these penalties reach a certain amount the taxpayers will be required to pay a fixed penalty.
So, if you miss a deadline a point will be applied, a specified number of points that are accrued will result in a penalty. Accordingly, the number of points required for a penalty depends on the filing frequency of the return.
Furthermore, HMRC is also introducing an amended penalty for deliberately withholding information from HMRC. They will have the power to charge penalties where a taxpayer deliberately withholds information which would enable HMRC to assess their tax liability. These penalties are based on a percentage of the tax due and can be reduced based on the taxpayer’s willingness to correct past disclosure.
Sounds like a similar system? It seems like HMRC are adopting ones given by the DVLA for driving offences. Of course, there is no suggestion that if you gather enough points in tax return penalties you will then be banned from paying tax…! More to follow once the Autumn Budget has been announced.
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