Massey Accounting Company

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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.


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National Minimum Wage Rise from 1 October 2016

Ok, so this is getting confusing. The National Minimum Wage (NMW) now runs alongside the National Living Wage (NLW).

The National Minimum Wage (NMW) rates rise from 1 October 2016 whereas we don’t expect an increase in the National Living Wage until April 2017.

In summary, and effective 1 October 2016 the follow minimum wage rates will apply

  • Workers aged 25 and over – £7.20 per hour (as has been the case since 1 April 2016)
  • Workers aged 21 – 24 years old £6.95 per hour (up from £6.70)
  • Workers aged 18 – 20 years old £5.55 per hour (up from £5.30)
  • Workers 16 – 17 years old £4.00 per hour (up from £3.87)
  • Apprentice rate £3.40 per hour (up from £3.30)*

* The apprentice rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age.

Ensure your payroll procedures are up to date. For further details and more rates visit gov.uk

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A tax free gift, is it true?!

A tax free gift, is it true?!

In general, an employer will report gifts made to employees on their annual Benefit-in-Kind Return form P11D meaning that both the employer and employee will pay income tax and national insurance on the value of the gift.

However since 6th April 2016 employers are now, sensibly, able to give tax free gifts to employees up to the value of £50 without the cost or complication of reporting a Benefit-in-Kind.

Such gifts now have a statutory exemption under the Trivial Benefits-in-Kind rule, which must meet each of the following four conditions to qualify for the exemption:

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

Practical points

  • This is a useful statutory exemption allowing employers to provide most gifts without needless complication.
  • To be treated as a trivial benefit in kind the gift must cost under £50. If your gift costs £51 then the whole amount will be taxed on the employer and employee as a benefit in kind.
  • The gift must be freely given and not as a reward for employee performance (examples include birthday gifts, Christmas presents, a gift on the birth of a new baby, the cost of a summer garden party).
  • Whilst cash or cash vouchers cannot be given, store / gift vouchers may be given.
  • There is no change to the amount of tax relief the business will receive on the cost of the gift. For example a garden party may still count as entertaining which is not allowed for corporation tax.

Source info: https://www.gov.uk/government/publications/tax-exemption-for-trivial-benefits-in-kind-draft-guidance/tax-exemption-for-trivial-benefits-in-kind-draft-guidance

Related topics

Entertaining and Meals Out – What is the correct tax treatment?

Are gifts to customers allowable against tax?

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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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What happens if you don’t comply with Automatic Enrolment?

What happens if you don’t comply with Automatic Enrolment or you miss your staging date?

The Pension Regulator will initially focus on educating employers who miss their staging date deadline however persistent and deliberate non-compliance can lead to penalties of between £50 – £10,000 per day. Ultimately criminal prosecution can ensue. For more information please visit The Pension Regulator.

For those who get around to meeting their duties only after their staging date has passed then the consequences include, at a minimum, additional admin and professional fees, and you will be required to back-date any missed contributions (in some cases you may also need to pay the late employees contributions on their behalf).

Massey Accounting Company is starting its communication with each of its employers between 6 – 12 months before their staging date. If you need any help or just a have a question, please don’t hesitate to let us know.

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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.


Leave a comment

Payroll clients beware!

Starting 6 March 2015 HMRC will issue penalties for late payroll submissions.

This means that payroll data needs processing and submitting to HMRC on or before the date your employees are paid.

Penalties are charged for more than one late submission in the tax year as follows: 1-9 Employees – £100 per month; 10-49 Employees – £200 per month.

Whist this is strict I don’t think we’ve had one late filing this year. However, the real trap may be when it comes to leavers:

Leavers (and their P45) should be processed and notified to HMRC on or before the day they leave or on the day of their last payment. Failure to report on time will trigger a late filing penalty.

Please keep this in mind and keep us informed as soon as you know when an employee is starting and leaving.

Source material: https://www.gov.uk/what-happens-if-you-dont-report-payroll-information-on-time

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