Its nearing the end of the Tax Year! Here are our top tips on year end planning and how to Save Tax.
Director’s salary levels:
Many small business owners pay themselves a small salary and take the rest of their income in dividends in order to be tax efficient. These salary levels should be reviewed every year. There are two critical thresholds that need to be noted for the 18/19 tax year:
- In order to receive a credit for the year towards the State Pension the salary should be above the “Lower Earnings Limit”. This will now be £503 a month. This has the happy outcome of getting a year credit for the state pension without paying any National Insurance.
- In order to be the most tax efficient and avoid paying any National Insurance for the Director the optimum salary is £702 a month. This level can be affected if the Director has Benefits in Kind and depending on how many employees the Company has. If you want personalised advice please get in touch.
Workplace pension minimum contribution up to 5%
For those already running a workplace pension the minimum contributions are set to rise to:
- Employer Contribution 2%
- Staff Contribution 3%
Full details here: https://www.thepensionsregulator.gov.uk/employers/contributions-funding-tax.aspx
Remember for those clients who use us for their payroll we can offer a very cost effective Workplace Pension admin service.
End of Year Tax Planning Items for Companies:
Remember that some Company actions impact Personal Tax. Here are our ideas of the main things you should be thinking about:
- If you are making Company Pension payments then consider making them before the end of the tax year to use the current year’s allowance. This stands at £40,000 a year currently.
- If you are going to declare dividends then consider which Personal Tax year you would like them to fall in to. If you would like them to be in the 17/18 tax year then they should be declared before the 5th of April. The 17/18 tax year is the last year of £5,000 of tax free dividends. The dividend tax allowance falls to £2,000 from April.
End of Year Tax Planning Items for Individuals:
Individuals should be planning for the end of the tax year too. Here are our top tips of what to be thinking about:
- ISA allowances: If you have spare cash the ISA allowances are extremely generous. The current year total is £20,000. Details are here: https://www.gov.uk/individual-savings-accounts
- Personal Pension Payments: Remember if you are making Personal Pension Payments that the level you can contribute is limited by the “Earnings” that you have received. Payments will need to be received by the 5th April to use this year’s allowance. Small business owners should nearly always be paying Pension Payments straight from the Company so this limit is removed.
Major Tax Changes for Next Year:
- New Scottish Tax rates
- There are new bands for Scottish taxpayers. They are detailed in full here: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2018-to-2019
- The additional bands make accurately forecasting personal tax bills even more complicated than it was before. If you would like us to forecast your personal tax for the forthcoming year please let us know.
- Reduction of interest relief on Buy To Let Property
- Remember that the tapering down of higher rate interest relief on Buy To Let Property is continuing. 2018/19 will see it go from 25% to 50%.
Get in Touch:
If you would like any more specific advice on anything in this newsletter please don’t hesitate to get in contact. Keep an eye on our website for news and stories relevant to small business owners. Wishing all our clients a Happy New Tax Year in advance!
