2019/20 Salary Dividend Planning – Save Tax !

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It is a long established practice that small businesses who are structured as a Limited Company might pay themselves a small salary and dividends to potentially save tax.

However in the run up to this tax year there have been multiple legislative changes that have affected the most tax efficient way of doing this. So all small Limited Companies should be reviewing their remuneration strategy with their accountant to check that it is still the best way forward.

Salary Level:

  • The abolition of the Employer’s Allowance for one Director Companies has actually simplified the issues around what is the best salary to take.
  • There is no point in paying additional National Insurance in order to save a smaller amount of tax.
  • Therefore in the majority of cases small business owners should be paying themselves a salary of £8,632 a year.

The advantages of this are:

  • No National Insurance,
  • A year’s credit toward the State Pension (now need 35 years)

Dividends:

  • The Dividend Tax allowance has been reduced to £2,000 from April 6th 2018

New Scottish Tax Bands:

  • There are new Scottish tax bands from the 5th April 2018 which along with the dividend allowance and the savings allowance make planning remuneration even more complex than it was before.

There are a number of ways of mitigating dividend tax including transferring shares to your spouse, Company Pension contributions and employing members of your family where they are actually doing proper work for your business.

Give us a call if you would like a review of your remuneration strategy.

John McLaughlin Chartered Accountant Scotland

John McLaughlin

CHARTERED ACCOUNTANT
Sutherland Black are plain talking accountants based in Scotland. We’ll support your business growth and goals. Talk to John today for friendly yet expert accounting advice.

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