The rules around personal taxation have changed so much in recent years that it is worth reviewing the current position for directors.
The introduction of the dividend allowance, the taxation of dividends and restrictions on the Employment Allowance have made significant differences to the tax position of directors and their companies.
If a director is planning on keeping their remuneration within the basic rate band (£45,000 is the maximum payable in the basic rate band for 2017/18), then it is most efficient to withdraw funds using salary, dividends and interest (assuming there is a credit director's loan account balance). The optimum salary to withdraw is the £11,500 (the personal allowance for the year) along with interest of £1,000 and the remainder as dividend. When taking a gross £45,000 from the company in this way a total of £500 can be saved between the director and the company when compared with taking the National Insurance Contributions Secondary Threshold (of £8,164) as a salary, being topped up by dividends only.
It is beneficial to receive interest due to the Personal Savings Allowance. The allowance is £1,000 per annum for basic rate taxpayers or £500 for higher rate taxpayers. Any interest received within the allowance is tax free.
The planning is not always straightforward, the optimum salary to take reverts to the Secondary Threshold for companies that are not able to claim the Employment Allowance. A company cannot claim the Employment Allowance if there is only one employee (a director) earning at or above the Secondary Threshold.
Updated article written by Sam Pooley, Tax Senior
If you are looking at director's remuneration planning, professional tax advice is essential as the rules regarding the various allowances have become increasingly complicated. One of our team of tax advisers would be happy to assist you in reviewing your personal circumstances.contact us
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