With the end of tax year fast-approaching, Pentins offer some last minute tax-saving advice before April 2019.
Director shareholders – salary
The personal allowance for 2018/19 is £11,850. Anyone with control over remuneration, i.e. company owner managers, you should review what level of salary you have taken to date if you are pursuing a tax-efficient remuneration strategy. Sometimes, the company is able to claim the employment allowance for secondary Class 1 NI. If this is the case for you, you could withdraw further salary up to the level of the personal allowance.
Once the personal allowance has been utilised, the tried-and-tested method of extracting more profit from the company is to vote dividends. This is because the applicable income tax rates are lower than they would be if you paid a bonus instead. Dividends are not subject to NI, but are not deductible for corporation tax (CT) purposes either. The downside with dividends is that there have to be cumulative profits to pay them from. Paying out more than what is actually available can lead to problems further down the line. For example, by having HMRC reclassify the dividend as a salary payment and looking to charge NI.
To avoid this, prepare an up-to-date set of management accounts to ensure any dividends aren’t likely to exceed the available profits. You should ensure to declare the interim dividends at a board meeting, along with the review of the accounts.
Savings income such as interest will be outside your control. However, you can control the timing of payments, if you have lent money to your companies.
This doesn’t need to be a formal loan; it could be the case that you have a director’s loan account with a substantial credit. If you are not charging interest on this, you are missing out on a tax-efficient means of extracting profit. Look to put in a charge for the 2018/19 year, as suggested by our expert advisers.
From the individual’s perspective, the interest is taxed in the tax year of receipt. So, it is possible for you to make a loan to the company ahead of 5 April 2019, and make a charge for interest for the next twelve months to include in the 2018/19 taxable income figures.
Individuals are entitled to make up to £40,000 of tax-relieved contributions in each tax year. Additionally, you can carry forward any unused allowance, for a further three tax years. Ask your accountant to review your historic contributions. This is most important if you are looking to make a large one-off payment, e.g. following a realisation of capital assets etc.
As a final point, remember that the qualifying period for entrepreneurs’ relief doubles to two years overnight from 6 April 2019. Ensure you exchange contracts for sale ahead of the year-end wherever possible. If you are selling your business, failure to meet the deadline would mean you lose out due to the change.