If only we were Google and we could cut a deal with HMRC to pay a “nice” amount of tax.
But we’re not and we have to follow the rules which, for most, will mean paying 7.5% more in tax on dividends from April 2016, after taking £5,000 of dividends tax free of course.
Many have asked me if there is anything they can do to minimise the impact of the new dividend tax. Here’s my list of things that you might want to consider ….
Act now and extract all available profit as dividends BEFORE 05/04/16
As you will be taxed more on dividends extracted from 06/04/16 make sure you maximise the amount you take from your limited company NOW.
You can take profits after corporation tax as dividends.
To show that you have available profits as dividends then make sure you have a set of accounts up to 05/04/16 prepared to demonstrate that you’ve not extracted too much.
This will be easy to do if you are using a Cloud Accounting system and have your bookkeeping up to date.
Make sure you claim all costs
You may have been a bit lax before with claiming valid and allowable business costs. Now’s the time to have a good review to make sure nothing is slipping through the net. All too often we find that costs which have been paid from the director’s own funds often get missed from the accounts.
Are you claiming for all of your business journeys no matter how short, your mileage, car parking, stationery, broadband, mobile phone, internet services and so on.
If you work from home why not have a good review of your use of home as office calculation to make sure that’s up to date.
You’re bound to find some odds and ends of costs you’ve neglected to put through your accounts. Every bit helps to keep your tax bill down.
Consider a pension through the company
If you’re employed through your company, and subject to the complex pension rules which exist, you may well be able to make an employer contribution to a pension scheme through your company. The contribution will be an allowable cost through the business and is a way to extract funds into a pension pot for you without incurring corporation tax.
Contact a reputable Financial Advisor who can talk you through the options. If you don’t know anyone who can help we can point you in the direction of one used by our own Managing Director, Elaine Clark and she is very hard to please!
Employ your spouse or give your spouse some shares
Clearly this depends on what your spouse does e.g. if he / she works elsewhere but there never has been a better time to potentially bring your spouse in the business. Subject to a robust shareholder agreement, you may want to pay them a salary and or allocate them some shares so that they can receive some dividends and take advantage of the £5,000 tax free dividend allowance.
This is an area where changes should be discussed with your accountant PRIOR to implementation. A thorough review of your circumstances should be undertaken as well as the responsibilities that making a spouse a shareholder and / or director will bring.
Do note that for auto enrolment purposes, as long as there isn’t a contract of employment, paying a salary to director(s) will not mean that the business needs to auto enrol, assuming that there are no other employees of course.
Change your accountant
A great way to save some money is to change your accountant.
We are still amazed at the fees charged for very straight forward accounting needs. Make sure that your accountant is technology savvy; huge fee savings can be achieved by those taking advantage of technology to cut out unnecessary effort, duplication and manual intervention.
With things like automatic bank feeds into Cloud Accounting systems gone are the days of huge amounts of manual input. The accounting process is so much easier and quicker than it ever was.
The streamlined effort should be reflected in cost effective accounting fees, as we do. Shop around, get recommendations and think about switching. It’s not hard to do that and you could save hundreds of pounds on your annual fees.
Staying with the same accountant is easy but very hard on your pocket. Maybe it’s time to have a look around and see how much you could save on your fees.
Warnings – things to be aware of which can trip you up
The employment allowance (national insurance holiday) has been abolished for one person limited companies.
HMRC are already adjusting tax codes for dividends which could impact your payroll calculation. Contact HMRC if you do not want your personal allowance adjusted in this way.
Some good news is that corporation tax will decrease to 19% from 01/04/17 and then 18% from 01/04/20 but of course a lot can happen before then. So this could change.
Do remember that you may have to make payments on account where your last Self Assessment tax bill was more than £1,000. Two payments on account are made in the tax year; each is half your previous year’s tax bill.