Last week’s Autumn Statement has been hotly debated in the press already. Read on to find how how it will affect MAF customers like yourself.
The big questions
Many people will have been concerned about rumoured changes to the taxation of dividends, commencing in April 2016. The big news here is that the autumn statement made no further mention of this, so we expect that the guidance from HMRC will remain the same.
However, business owners will have to deal with higher personal tax bills starting in the new financial year, so it’s a good idea to look over your current situation and speak to your accountant in the run up to April.
Noteworthy numbers from April, 2016
- Personal allowance: £11,000
- Tax-free dividend allowance: £5,000
- Dividend income tax*:
- £5,001-£32,000: 7.5%
- £32,001-150,000: 32.5%
- £150,000+: 38.1%
*Note: these figures include the first £5,000
My Accountant Friend recommends…
If you’re only receiving income from your business, we recommend a basic salary of £11,000. This will mean that your limited company will receive tax relief of £2,200 (20% of £11,000). This results in a small national insurance amount, to top up state pensions.
Maximum tax-free dividends
The max you can take without being taxed: £5,000
Getting the most out of your basic rate band (dividend income taxed only at 7.5%)
- Maximum dividends: £32,000 (£5,000 tax free)
- Tax bill: £2,025, plus Payments On Account for the following year of two lots of £1,012.50
- Tax payable by 31 January 2018: £3,037.50
- Second Payment On Account payable by 31 July 2018: £1,012.50
Payments on account
Payments on Account can be seen as a way of paying some of next year’s tax bill in advance. This is done by looking at the current year’s tax bill and splitting it in half.
If you are looking to avoid making these payments, then the maximum dividends we recommend taking is £21,221, leading to a tax bill of £998.98 which will be payable by January 31, 2018.
Want to eliminate your personal tax totally?
- Invest into a SEIS (50% tax relief) or EIS (30% tax relief) investment scheme (many are found via crowd funding websites).
Talk to us directly if you have:
- Benefit-in-kind income on your P11D, e.g. company car, medical benefits
- Rental properties
- Pension income
- Other PAYE income
- Overseas income
- Income split between you and your partner in the business
Feel free to contact us any time if you’d like to chat about how the autumn statement might affect you and your business. We regularly post articles and advice via our blog, The Life Hub, and we recommend that you subscribe for the latest info.
