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Spring Budget 2017 – A Business Owners Guide

2017.03 Hammond BudgetSmall business owners will probably find that yesterday’s budget was not as bad as some of the headlines are making out. Yes national insurance will increase for the self-employed and company shareholders will again see an increase in their personal tax bills but a quick look at the numbers shows that, for now, these increases are likely to be modest.

Mr Hammond suggested that the self-employed earning below £16,250 will actually end up paying less National Insurance – and this seems about right. In fact even if profits were around the £25,000 mark then the increase (which will start from April 2018) will be only around £140.

As for small company owners that pay themselves using a mix of salary and dividends (for the best 2017/18 salary and dividend mix see here) the announcement means a basic rate taxpayer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.

On The Bright Side

Very welcome was the postponement to Making Tax Digital for the self-employed which for those under the VAT threshold means that quarterly reporting will not now become mandatory until April 2018 (starting April 2020 for limited companies).

And any firm coming out of Small Business Rate Relief will receive an additional cap next year on increases of no more than £50 a month.

Download our more detailed guide to the budget (including current and newly announced tax rates and thresholds) here.

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Optimal Directors’ Salary and Dividend Mix for 2017-18

Probably the most important post of the year for limited company directors!

Question: What’s the most tax efficient salary and dividend mix for the 2017/18 tax year?

An owner managed limited company will usually pay their directors / shareholders with a mix of salary and dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2017/18 is:

Upper limits for 2017/18

Salary – per annum: £8,164 (last year £8,060)
Salary – per month: £680 (last year £671)

Dividend – per annum: £36,836 (last year £34,940)
Dividend – per month: £3,069 (last year £2,911)

It should be noted that since the introduction of the dividend ordinary tax rate of 7.5% on dividends over £5,000 there will be a personal tax bill of £2,138 (last year £2,025) if dividends are paid all the way up to the basic rate limit of £45,000 (last year £43,000).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,500 and dividends up to a maximum of £33,500 (the overall tax saving between the director and the company being around £234).

This second option will not be the best fit for everyone. More that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.


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Optimal Directors’ Salary for 2016-17

Probably the most important post of the year for limited company directors!

If you’re looking for the 2017/18 optimal directors’ salary, check out this year’s post here. Otherwise for our 2016/17 article read on.

An owner managed limited company will usually pay their directors’ / shareholders’ with a small salary + dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2016-17 is:

Upper limits for 2016-17

Salary – per annum: £8,040 (last year £8,040)
Salary – per month: £670 (last year £670)

Dividend – per annum: £34,960 (last year £30,891)
Dividend – per month: £2,913 (last year £2,574)

It should be noted that with the introduction of the dividend ordinary tax rate of 7.5% there will be a personal tax bill of £2,025 if dividends are paid all the way up to the maximum basic rate limit of £34,960 (yes, that’s a personal tax bill of up to £2,025 compared to £nil last year!).

For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employers N.I.) by up to £3,000 (last year £2,000).

In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,000 and slightly lower dividends of £32,000 (the overall tax saving between the director and the company being around £237 (last year £203)).

This second option will not be the best fit for everyone. This year, more that ever, personal circumstances must be carefully considered to give the best results.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.


Enjoy saving tax?

We have two videos to help on ourYouTube-logo-full_colorchannel; and for regular tax-tips follow our blog on Google+ or click +Follow at the bottom of this page.


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Optimal Director’s Salary for 2015-16

Probably the most important post of the year for company directors!

Wage riseThe small owner managed limited company will usually pay their directors / shareholders with a small salary + dividends.

The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package would be:

Upper limits for 2015-16

Salary – per annum: £8,060 (last year £7,956)
Salary – per month: £671 (last year £663)

Dividend – per annum: £30,891 (last year £30,518)
Dividend – per month: £2,574 (last year £2,543)

However, since the introduction of Employment Allowance some company directors will be better off paying themselves a £10,600 salary and slightly lower dividends (up to £28,606).

Employment Allowance means that most employers will be able to reduce their Class 1 National Insurance contributions (Employers NI) by up to £2,000.

So, increasing your salary and yet not having to pay the Employers NI will save the company £203 per director / shareholder.

Not everyone will benefit. Generally if you have other income you’d be better sticking with the above “usual” remuneration package.

Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.

Enjoy saving tax?

View our video: How to Save Tax YouTube-logo-full_color; and follow our blog on Google+ or click +Follow at the bottom of this page.


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Invoice on the go

Invoices by WaveMy favourite (and free) cloud bookkeeping system just got better – the new Invoice by Wave app allows on-the-go invoicing. Download it from the App Store.

As I’ve said before, I’m not an affiliate, just a fan of this cool bookkeeping system that’s already helping many of my clients.

 

Enjoy saving tax?

View our video: How to Save Tax YouTube-logo-full_color; and follow our blog on Google+ or click +Follow at the bottom of this page.


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Can the Cycle to Work Scheme Work for You?

Tour de France

Feeling inspired by le Tour de France? As a business owner perhaps you’re wondering if the Cycle to Work Scheme could be of some benefit.

Probably not, BUT…
The government have done it again – generally small owner managed businesses have found that the costs and hassle of operating the scheme outweigh the benefits.

For example – you could use a third party provider to set-up the scheme (usually a larger bike shop) but even then there’s salary sacrifice arrangements, benefits in kind, VAT claimed (then paid later!) and terms of employment to be updated. Forget it!

REAL WORLD SCENARIO
If you’re planning to use your bike for mostly business (including your commute) then your company can buy you a bike + safety equipment. The limited company will attract 20% corporation tax relief and be able to reclaim the VAT. Simples! A greater saving with much less trouble.

Nb: Of note is that the company will always own the bike or must resell to a third party / scrap.

Source info: https://www.gov.uk/government/publications/cycle-to-work-scheme-implementation-guidance http://www.legislation.gov.uk/ukpga/2003/1/section/244?view=plain

Enjoy saving tax?

View our video: How to Save Tax YouTube-logo-full_color; and follow our blog on Google+ or click +Follow at the bottom of this page.

 


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Tax Free Pay Rise

photo

Next time you’re considering giving your employees a pay rise (or yourself as director or secretary) consider giving them a mobile phone instead!

Presuming the employer takes out the contract in the company name and provides just one phone to their employees then this is a tax free benefit to the employee – regardless of how many personal calls the employee makes.

Example

An employee currently pays a £40 per month mobile contract. After having paid his tax (20%) and National Insurance (12%) this contract costs the employee £59 of their monthly gross wage!

Presuming the employer could secure a similar tariff in their name the cost to the employer might be just £27 per month (after VAT and corporation tax relief).