Your profit extraction Strategy from April 2022
It’s that time of the year when I update our annual blog advising those operating via a Limited Company on how to extract money from their business to pay themselves.
This year the blog is different.
I am not going to be setting out what you should pay yourself in a salary and how much tax you’ll pay on this and your dividends.
July Tax Changes
This year we have a very unusual tax event. There are some tax threshold changes that occur from July 2022 meaning that things are not as straight forward as they have been in previous years.
How much should you pay yourself as a salary?
At CheapAccounting.co.uk as a team we’ve spent hours crunching the numbers to find that the amount that you could save in tax is, on average, less than £200 per year if you pay yourself at an amount as close to the annual personal allowance curtailed to the earnings threshold for National Insurance (yes it’s complicated)!
Lets’ try to make it simpler.
Basically there are two simple options for how much you pay yourself
- The keep it simple option of £758 per month. This needs to be paid via a payroll scheme but does mean that you do not have to worry about National Insurance payments
- £992.33 per month with Employers National Insurance due either each month for employees or from January 2023 if you’re a Director
Other amounts may apply depending on your specific circumstances.
Tax is taxing and unfortunately in an era of Tax Simplification for reasons that seem beyond common sense this year has brought about some very surprising and unnecessary complications.
The best advice that we can give to you is that if you operate via a Limited Company then talk to your accountant ASAP and before April 2022.
If you don’t have an accountant get one.
And if you do have an accountant but they have lost your records then get a new one!
As a reminder:
Operate a Payroll Scheme
To pay a salary you must be registered as an employer and submit RTI (real time information) returns each pay period. Fines apply, starting at £100 per month, for late filing.
Dividend Tax Increase
Dividend tax has gone up!
Any dividends paid over £2,000 will attract dividend tax.
The rates of tax will be:
- First £2,000 of dividends – tax free
- 8.75 % for dividends falling within basic rate tax (caution on how this is calculated)
- 33.75% for dividends falling within higher rate tax (income over £50,270)
- 39.35% for dividends falling within the additional rate of tax (over £150,000 with income over £100,000 imposing restrictions on your personal allowance)
Note the increases in the higher and additional tax rates!
Dividends are paid out of post tax profits.
Everyone has different tax affairs and, as such, we recommend that you seek the advice of a suitably qualified accountant before making any tax planning decisions.
Please do check accountancy qualifications; anyone can call themselves an accountant.
Get your calculations checked with your accountant to make sure you have a paying yourself approach that suits you.
Failure to process your payroll and submit the correct RTI (Real Time Information) returns could result in fines or penalties.
Disguised employment issues aside, operating as a limited company is perfectly legitimate and is purely a business choice.
Salary is an allowable business cost and will reduce the profit subject to corporation tax.
The above figures are based on the tax rates for England.
Rates and allowances for Scotland and Wales may be different – please consult your accountant for more information.