y/e tax planning question

[9005rpm]

Hi all,

I have a personal tax year end question that I am hoping someone can help with.

I have a limited company and own 100% of the shares. If we assume it has distributable profits of £200k for the year and I would like to extract it all, should I be:

1. Using up the nil rate income tax band prior to issuing any dividends; and / or
2. Use up the 20% income tax band prior to issuing any dividends?

I had in mind that the second option could have a consequence for the % tax payable on dividends, but might be thinking about something else.

Any views greatly appreciated.

Thanks

[Eric Mc]

Don't forget that you have the following allowances for 2022/23.

£12,570 Personal Tax Allowance
£2,000 Dividend Allowance

Basic Tax rate - ordinary income - 20%
Basic Tx rate - dividends - 8.75%

Higher Tax rate - ordinary income - 40%
Higher Tax rate dividends - 33.75%

Additional Tax rate - ordinary income - 45%
Additional Tax rate - dividend - 39.35%

You also need to take into account that any income over £100,000 will result in your personal tax allowance of £12,570 being reduced by 50p for every £1 over £100,000. By the time you get to £125,140, your personal tax allowances will have been eroded to Nil.

With all these permutations it is actually quite complicated trying to work out all the options.

Have you extracted salary from the company during the year? In other words, have you already eaten into your £12,570 tax allowance?

[9005rpm]

That's really helpful, thank you Eric.

[silentbrown]

Are you paying into a pension? There's no tax relief on pension contributions using dividend income, so higher base salary may be needed. (@EricMc correct me if I'm wrong here !)

Also, consider NI: Make sure you pay enough salary (and hence NI) to get the year to count for state pension purposes.

[isleofthorns]

silentbrown said:

Are you paying into a pension? There's no tax relief on pension contributions using dividend income, so higher base salary may be needed. (@EricMc correct me if I'm wrong here !)

Also, consider NI: Make sure you pay enough salary (and hence NI) to get the year to count for state pension purposes.

the company can make the contribution, not restricted to the salary taken

[isleofthorns]

9005rpm said:

Hi all,

I have a personal tax year end question that I am hoping someone can help with.

I have a limited company and own 100% of the shares. If we assume it has distributable profits of £200k for the year and I would like to extract it all, should I be:

1. Using up the nil rate income tax band prior to issuing any dividends; and / or
2. Use up the 20% income tax band prior to issuing any dividends?

I had in mind that the second option could have a consequence for the % tax payable on dividends, but might be thinking about something else.

Any views greatly appreciated.

Thanks

If it were me, I'd
1 - probably make a pension contribution direct from the company into a SIPP/SSAS
2- offset any personal costs you can with company costs, ie, electric cars etc
3 - as you're likely to not have any personal allowance left, I'd probably cap salary around 10-12k so you make your basic NI cover for the year
4 - take the balance as dividend
5 - if you don't 'need' all the cash, maybe look at things like VCT's or other investments that are able to reduce your income tax bill