To March’s Tax Tips & MYOB News.
As we approach the end of the tax year you do need to consider the optimum director’s salary level for 2019-20. See our main article below and contact to confirm your salary rate.
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Have a look at some of the useful new features of Acclivity AccountEdge 2019. There are lots more AccountEdge training videos available on our website.
|Optimum salary and dividends for 2019/20
For 2019/20 the personal allowance has increased from £11,850 to £12,500, which means your first £12,500 of income is tax free.
The dividend allowance remains at £2,000 (same as 2018/19) – this means the first £2,000 of your dividend are tax free.
For limited company contractors, freelancers and small business owners, taking a low salary with the balance of income being extracted as dividends is a common tax planning strategy.
What is the optimum level of salary and dividends for 2019/20?
The employment allowance remains at £3,000 for 19/20 (not available to companies with one director & no employees).
Typically the employment allowance means that it is slightly more tax efficient to take a gross salary all the way to the tax free personal allowance level of £12,500. .
We have outlined two different salary and dividend options on the basis that you wish to extract salary and dividends up to the higher tax band (£50,000) but no higher.
We have made some key assumptions when preparing these calculations:
You are a UK resident
You have no student loan balance
Your only income is your salary and dividends from your company
You are not caught inside of IR35 – see our guidance later in this article
You have a standard personal allowance
Your company has sufficient post tax profits to support these dividends
Option 1 – claiming the employment allowance, more tax efficient but a little more admin
Take an annual gross salary of £12,500 which is the standard tax free personal allowance for 2019/20.
This level of salary will not attract any personal income tax, but it will attract some employees national insurance which will total £464 (rounded).
No employers national insurance will need to be paid as it will be covered by the employment allowance, (assuming you can claim it & it is not used up by other employees).
With regards to dividends, the higher tax band is £50,000 so assuming you want to stay in the basic tax band this leaves you with £37,500 of dividends to take (£50,000 less £12,500)
There will be some personal tax to pay on these – the first £2,000 is tax free (dividend allowance) but after that they are charged at 7.5% tax.
Option 2 – take a salary up to the national insurance (NI) primary threshold
If you can’t claim the employment allowance or want to keep things simpler this is a good strategy for you.
Go up to the Primary NI Threshold but no higher: for 2019/20 this is £719.33 per month or £8,632 for the year. Therefore we would suggest a monthly gross salary of £719 which stays just below this threshold.
Assuming as with Option 1 you wish to take dividends up to the higher tax band but no further, then you can take slightly more dividends with Option 2 than with Option 1.
This is because you are only taking £8,580 of salary which leaves £3,920 of dividends that are in the tax free allowance, as well as the £2,000 tax free dividend allowance.
You are not paying any employees national insurance in this scenario which is why you end up with a bit more cash in your own pocket (at the expense of some additional corporation tax for your company).
|Checking directors’ expenses
As 31 March approaches, many companies will be getting ready to tie up tax matters for their financial year-end. Now is a time to ensure that everything is in order regarding directors’ expenses and review loan account record-keeping procedures. This is particularly so as HMRC report that they commonly find errors in relation to directors’ loan accounts when making routine reviews of company tax returns.
try and give us three working days to process your payroll. Again in
February, we were asked to turn around several payrolls in less than 24
hours. Although we will always do our best to return the payroll
quickly we cannot guarantee that you will get it back within less than
three working days as this will depend on other work priorities.
|Electronic Notices from HMRC – don’t ignore!
Hannah Armstrong was charged penalties totalling £1300 under FA 2009 Schedule 55 for late submission of her 2015/16 tax return.
had ceased self employment in January 2016 on becoming an employee, and
didn’t realise she needed to notify HMRC of a nil liability. She had
been unaware that there were important electronic messages in a secure
mailbox set up by HMRC, and said she was only informed when the
penalties reached £1200. She made a late appeal against the penalties,
which was referred to the first-tier tribunal (FTT). In the judge’s
opinion, Armstrong’s delay in appealing was serious and significant, but
“not at the upper end of such delays”. The taxpayer’s explanation for
the delay was plausible – it was also a reason for the appeal itself, so
there would be prejudice in refusing to hear the appeal merely because
of the delay.
The use of
electronic communications by HMRC to serve statutory notices is governed
by the Income and Corporation Taxes (Electronic Communications)
This allows statutory notices to be sent to a secure
inbox. As long as some conditions are satisfied, they will be treated as
if they had been validly delivered by post. Those conditions are:
• The taxpayer has consented to receive the information via the self assessment online service;
HMRC has sent an email to their last known email address (or a text to
their contact number) informing them that information has been delivered
to their secure inbox; and
• The despatch of that email has been recorded by HMRC, and that record shows that the email was not “bounced”.
Reading the T&Cs
was clear that Armstrong had signed up to the SA online service, but to
what exactly had she agreed to in the terms and conditions? Neither
side had produced any documentary evidence of what the terms and
conditions said at the time she signed up, but the judge examined the
T&Cs in force at the time of the hearing.
“In my view,”
commented the judge, someone “would realise from reading those terms and
conditions that they would get a notice to file a return sent to their
secure mailbox, replacing the paper notices to file, that they would get
reminders that returns and payments of tax are becoming due and that
they would get statements of their tax position from time to time, that
is things that they have been getting hitherto, and if they are
experienced filers of returns, things they may already know well.”
they would not necessarily realise was that notices charging penalties
would be sent to their secure inbox, or that the emails pointing out
that this had been done would be quite so “bland and uninformative”. In
fact, all those emails said was: “you have a new message from HMRC about
Self Assessment”, giving no indication whatsoever that they referred to
anything so important and urgent as a statutory penalty.
conclusion was that – if consent is taken to mean informed consent –
Armstrong had not consented to receive penalty notices electronically
(but she had consented to receive notices to file tax returns). The
judge, therefore, found that the issue of penalty notices to Armstrong’s
inbox was not valid.
It does seem that
the execution of paperless self assessment is something of a dog’s
breakfast. The fact that there are holes in HMRC’s terms and conditions
broad enough for an inquisitive judge to poke around in, should be a
cause for alarm at HMRC board level. While FTT judgments are not
binding on anyone (even future FTT tribunal panels), the logic pursued
here – if agreed by higher courts – could be persuasive enough to
undermine whole chunks of the MTD framework.
Reprinted with permission from Indicator Magazine.
|March questions and answers
Q. My wife and I own various assets – some are held in individual names and others are held jointly. We are wondering whether we should ‘equalise’ the value of our assets so as reduce potential liability to capital gains tax at a future date.
Q. I run my own business, which is registered for VAT. If I purchase a new car for business use, can I reclaim the VAT I pay on it?
Q. I bought a property several years ago to rent out. Over the last five years its value has risen from £120,000 to £220,000. I understand that if I sell it now, I would be liable to pay capital gains tax on a gain of £100,000. If I sell this property and re-invest the proceeds in another buy-to-let property would this mean I could delay paying the tax now?
13 – Spring Statement 2019
19/22 – PAYE/NIC, student loan and CIS deductions due for month to 5/3/2019
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