Massey Accounting Company

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Optimum Directors’ Salary and Dividends for 2018/19

What is the optimum directors’ salary and dividend mix for 2018/19? Or click here if you’re looking for our more recent 2019/20 recommendation.

Small companies will usually pay their directors with a mix of salary and dividends. The level of the directors’ salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for the forthcoming tax year is:

 

Upper limits (if intention is to fully utilise the basic rate tax band)

2018/19

2017/18

Directors’ salary – per annum

£8,424

£8,164

Dividends – per annum

£37,926

£36,836

 

It should be noted that dividends exceeding both the personal allowance and the dividend allowance of £2,000 (previously £5,000) will be taxed via the directors’ personal income tax return at 7.5%. Meaning that if dividends are paid all the way up to the basic rate band of £46,350 (2017/18 was £45,000) there will be a personal tax bill of £2,438 (last year £2,138)

For those companies that have more than just a single director on their 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 £11,850 and dividends up to a maximum of £34,500 (the overall tax saving between the director and the company being around £240).

This second option will not be the best fit for everyone. More than 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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Pension contribution rates increase from April 2018

If you employ staff and run a pension scheme the minimum contributions rates are increasing from April 2018 as set-out in the table below. This has long been the intention of The Pension Regulator (TPR) and is known as phasing.

 

 

Date Employer minimum contribution Staff contribution Total minimum contribution
Until 5 April 2018 1% 1% 2%
6 April 2018 to 5 April 2019 2% 3% 5%
6 April 2019 onwards 3% 5% 8%

If we provide your payroll services then we will of course implement the increased rates on your behalf but because this represents an increased cost for both employer and employee we highly recommend that you let your staff know in advance of this change. To do so you may like to use this TPR letter template.

Source info: http://www.thepensionsregulator.gov.uk/en/employers/phasing-increase-of-automatic-enrolment-contribution

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Autumn Budget 2017 – Small Business Guide & Tax Rates

2017.03 Hammond Budget

An uneventful budget, thank you Phillip!
Here’s a brief round-up of the main points for you as a small business owner:

Personal tax free allowance – to increase to £11,850 for 2018/19 (from £11,500)

Marriage Allowance – increase to £1,185 worth a possible tax saving of £237 (from £230)

VAT Threshold – has been frozen at £85,000 for two years (there’s a hint that this could be lowered in line with other EU countries after April 2020)

Tax free dividend allowance – will be reduced to £2,000 (from £5,000) as we already knew from April 2018.

Corporation tax – to remain at the current rate of 19%.

Making Tax Digital – VAT registered businesses will be required to maintain digital records from April 2019 – meaning that most such business will need to consider using cloud accounting apps.

IR35 – Unsurprisingly, it was announced that HMRC will consult on reforms to IR35 for the private sector (public sector having already undergone reforms).

Self-Employed NI – Will delay the abolition of Class 2 NICs by a year until 6 April 2019. Class 4 will remain at 9%.

National Minimum Wage – increase to £7.83 starting April 2018 (from £7.50)

We have two downloads available for our clients:

Our Complete Guide to the Autumn Budget 2017, and our most recent Tax Rates Sheet covering 2016/17, 2017/18 and 2018/19

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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.


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Are gifts to customers allowable against tax?

As a general rule gifts to customers are not allowable against your taxable profits.

However, follow this guidance and you can afford to be a little more generous with your customers this year:

Small gifts which carry a conspicuous advertisement for the trader are an allowable expense. Common examples include: branded diaries, pens and mouse mats. The advertisement must be on the gift, not just the wrapping.

Unfortunately the expenditure of the following kind is specifically excluded (even if it incorporates your advertisement): Food, drink, tobacco, gift vouchers and gifts exceeding £50 per recipient (even if it carries your business logo).

Source material: http://www.hmrc.gov.uk/manuals/bimmanual/BIM45070.htm

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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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Can the Cycle to Work Scheme Work for You?

Can the Cycle to Work Scheme Work for You?

What a great summer its turning our to be for cycling fans! As a business owner perhaps you’re wondering if the Cycle to Work Scheme could be of some benefit?

In my opinion, 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.

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

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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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Budget 2016 – A Business Owners Guide

The Budget 2016 was by and large welcomed by small businesses. Notable for plans to scrap business rates for properties with a rateable value of £15,000 or less from April 2017 (up from £6,000) and a further planned reduction in the corporation tax rate to 17% from April 2020 (the current corporation tax rate is 20%, reducing to 19% from 1 April 2017).

Download here our more detailed: Guide to Budget 2016.

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National Living Wage to replace National Minimum Wage from April 2016

The National Living Wage of £7.20 per hour will become the new minimum pay rate for those aged 25 and over starting 1 April 2016.

Slightly confusingly the two terms National Minimum Wage (NMW) and National Living Wage (NLW) will now run in tandem but basically:

If your employees are aged 25 and over they will be entitled to the £7.20 National Living Wage.

Under 25 years old and they will be entitled to the National Minimum Wage of £6.70. Although there are lower rates for those under 21 or on an apprentice scheme. See our post regarding NMW for more details.

It seems that the change needs highlighting because we’ve become accustomed to the NMW rise on 1 October each year. But on 1 April 2016 many of your employees will be entitled to their second pay rise in 6 months. Please be sure to plan for the additional costs and adjust your payroll settings accordingly.

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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.


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Can you insure against a tax investigation?

under_investigation-1024x665If you’ve ever received that dreaded letter through the door you’ll know that a tax investigation is costly in at least two ways:

1. A typical investigation results in tax penalties and interest levied on the taxpayer.

2. Your accountant will need to charge for their time spent defending your case.

And that’s not to mention your own time involved in digging-out and providing your historic records.

Whist you can’t insure against HMRC penalties or what they might discover to be unpaid tax you can insure against your accountants’ time in defending your case; ensuring that the final cost of tax and penalties is as low as possible.

Why is Massey Accounting Company now offering fee protection insurance?

Firstly, several recent enquiries from our clients’ prompted us to look at offering this service.

And secondly, let’s face it – the first thing you would do if you received that dreaded letter would be to call your accountant. In our experience tax investigation fees cause strain on our relationship with uninsured clients. I’m sure you understand that no one can work for free. The alternative might be to accept the assertions of HMRC and prematurely settle the enquiry. We would feel much more comfortable having the freedom to defend your case to the hilt!

How much does it cost?

The insurance can be paid monthly or annually in advance. There will be no difference in cost.

  • Personal Tax clients (eg. employment / rental income only) – £3 per month
  • Sole Traders – £8 per month
  • Partnerships – £9 per month
  • Limited companies – £10 per month

All of the above premiums also include complimentary access to Employment Law and Health & Safety advice lines.

What should you do next?

The insurance is backed by Croner-TaxWise. Please take a look at their explanatory leaflet hereTo sign up now simply send us an email and we’ll reply with your quote and sign-up forms.


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Check out our new whiteboard animation

Please check out our newly created 2 min. whiteboard animation. Comments and feed-back are welcome! Please feel free to share.

 

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Thank you John Oldham Plastering

Thank you John Oldham Plastering for your testimonial. We’re proud to be working with local businesses like yours.

Read John Oldham’s testimonial. Visit John’s website: www.plastererhighpeak.co.uk

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Travel – no longer a tax deductible expense for contractors

Are you a contractor working through your own limited company? Then the government are about to drastically reduce your tax deductible expenses!

Essentially, contractors will no longer be able to claim for their cost of home-to-work travel and subsistence.

The detail
At Budget 2015 the government announced its intention to consult on proposals that will restrict tax relief for the cost of home-to-work commuting for those employed through an employment intermediary and working under the supervision, direction or control of any person.

The widely criticised consultation has now closed and it is expected that from 6 April 2016 the government will remove the ability of contractors to claim tax free travel and subsistence costs when all of the following apply:
A. The contractor works through an employment intermediary whose business is substantially the supply of labour;
B. The contractor can be subject to (or the right to) supervision, direction or control in their work by any person;
C. The contract is performed within the UK – tax relief for the costs of travelling to workplaces situated overseas is not affected.

It is now highly likely that these proposals will be included in the Finance Bill 2016.

There is no getting around the fact that this is very bad news for limited company contractors that can now expect significantly higher corporation tax bills. Some contractor may be able to re-arrange their affairs to reduce their exposure to the new rules. All of our contractor clients will shortly receive personalised guidance.

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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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