Welcome to our video series of Tip-Top Tax Tips for 2015. We’ll be giving you 5 of our top tips to cut your tax bill in the year ended 5 April 2016. In Part 1, we’ll talk through the best ways to take the profits out of the business.
You can watch it here, or read all about it below the video.
Hello and welcome to our Tip-Top Tax Tips for 2015. Now, I’m having to take a bit of a broad brush as the details do depend on exact circumstances, but here are my top 5 tax-saving tips for Limited Companies in 2015.
Tip Number 1 is all about taking the cash out of your Limited Company.
The first thing to consider is your salary.
If you have a Ltd Co, traditionally the most tax-efficient route is to pay a salary up to the National Insurance threshold and then take additional cash as a dividend. In the year to 5 April 2016, the figure is £8,060. This is because you get Corporation Tax relief in your company at 20% but pay no personal tax on the salary. You also get your dividends tax free until you earn over £42,385.
Traditionally, if your salary went above the NI threshold, you’d still get the 20% Corporation Tax relief…..but pay 12% Employees National Insurance and 13.8% Employers National Insurance, ie you’d pay 25.8% NI to save 20% tax. Now, it’s not like I’m an accountant or anything, but I can see that that makes no sense!
This year, the Employees National Insurance allowance has been extended so you don’t pay the first £2,000 of Employers NI. This means that, if you have no employees, you should pay yourself all the way up to £10,600. You only pay 12% Employees NI to get the 20% Corporation Tax relief…..which is good financial sense. You save £204 in tax.
Of course, you should look at other ways of using tax reliefs. If you have a spouse or family member who isn’t using their £10,600, you can pay them a salary. Or, if they’re a basic rate tax payer, you may want to give them shares as their dividends will be tax free.
Secondly, you should think about the timing of your dividends on a year-by-year basis. As the owner of a Limited Company, the timing of your personal tax is in your hands – it’s one of the benefits of a Limited Company as opposed to a sole trader.
This means you should keep an eye on some of the main thresholds for personal tax and, if you’re close to one of them, consider delaying dividends until the next tax year.
- £10,600 is the tax-free personal allowance
- £42,385 is maximum you can earn as a basic rate taxpayer
- At £50,000, you start to lose any child benefit payments
- At £100,000 you start to lose your personal tax-fee allowance.
- And, at £150,000 you become an additional rate taxpayer, ie you pay 45% tax on any additional income during the year.
Thirdly, you should consider a pension to cut your tax bill. Another way of reducing your income is by paying into a pension – these can be really tax-efficient. If you’re considering a pension, you should talk to an Independent Financial Adviser as there are lots of different types.
So, that’s Tip-Top Tax Tip Number 1 – the best ways to take the profits out of the company. The recent budget in the Summer of 2015 means it will all change next year but, for 2015, this can be the best way to save tax.
I hope you found that useful. I’ll be back soon with Tip Number 2 on how to minimise your VAT bill.
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