2018/19 Salary
The personal allowance and National Insurance rates will change with effect from 6 April 2018. For all those to whom a salary is paid which aims to be at the level of the primary threshold for National Insurance, the monthly salary payment should therefore increase to £702 per month (£8,424 per annum), for 2018/19. National Insurance contributions will not be payable by either the Director or employer at this level, but the Director will still receive credit towards their state pension for the 2018/19 tax year.
2018/19 Dividends
The dividend rates for 2018/19 are as follows:
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£2k - dividend tax allowance
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0%
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£11,850 - £46,350
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Basic Rate
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7.5%
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£46,350 - £150k
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Higher Rate
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32.5%
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> £150k
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Additional Rate
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38.1%
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The first £2,000 of dividends (2017/18 £5,000) known as the dividend allowance, is taxed at 0% irrespective of an individual’s other income.
Payment of dividends is a standard way for a company to distribute its profits amongst its shareholders, and we have advocated this for our clients for a number of years. There are, however, a number of rules which apply to the payment of dividends which we felt would be prudent to highlight:
- Dividends can only be paid where there are sufficient reserves within the company.
- Dividends must be paid in accordance with the rights pertaining to the individual’s shares. If two shareholders hold the same type of share, then they are both entitled to the same amount of dividend per share. You can not pay different amounts of dividends on the same class of share.
- The effective date of a dividend for tax purposes is the date on which payment becomes unconditional which is for:
- Interim dividends – the date the company pays the dividend (this could be physical payment or a credit to the DLA).
- Final dividends – the date of the shareholder resolution to approve the dividend (normally just before the accounts are finalised).
- Payment of dividends must be noted in the minutes of the relevant board meeting.
- Dividend vouchers must be produced prior to 6 April and provided to shareholders documenting each dividend payment.
With the above dividend rules in mind, in particular the drop in the dividend tax allowance from £5,000 to £2,000 from 6 April 2018, it is worth checking whether you have optimised your tax position for the current 2017/18 tax year.
Tax on Investment Income
For 2018/19, the Personal Savings Allowance is still available which means that the first £1,000 (basic rate taxpayers) or £500 (higher rate taxpayers) of interest received will be tax free.
In addition to this, for individuals who receive only investment income in excess of the personal allowance (£11,850 2018/19), the first £5,000 of interest will be subject to the starting savings rate of 0%.
If an individual does not currently receive enough interest from other sources and has loaned money to the company, you may want to consider paying interest at a commercial rate on the loan in order to fully utilise these allowances. The company would need to deduct basic rate tax and submit a form CT61 to HMRC.
Pension Contributions
The annual allowance for pension contributions will be £40,000 for 2018/19. However, this is reduced proportionally for individuals with income in excess of £150,000. For those with earnings of £210,000 or more, the annual allowance will be limited to £10,000. If you would like any further information regarding the changes to pension contributions or any other pension planning advice, our Hazlewoods Financial Planning team would be happy to help.
Enterprise Investment Scheme
Higher rate taxpayers could benefit from making investments that qualify for Enterprise Investment Scheme (EIS) relief. Providing the investment is held for a minimum of 3 years, 30% income tax relief is available on the amount invested. Our Hazlewoods Financial Planning team can also provide investment advice if you would like further details on EIS.
If you would like further information regarding the above, or wish to have advice tailored to your individual circumstances, please do not hesitate to contact a member of our Tax team.
The information included in this is based on current tax legislation which is subject to change and amendment. Before acting on the information, you should confirm that there have been no changes in the relevant tax legislation which could affect this information.