Tax efficiency tips for Limited Companies

Tax and personal allowance changes
A new tax year has just started which means the personal allowance and basic rate band limits have changed. The new figures are:

  • Personal allowance -£11,850. This is the amount of income you can take home before you will need to pay any tax
  • Basic rate band – £34,500. This is the upper limit before you will have to pay tax at 40%.

This means that you won’t have to pay tax at 40% unless your income is over £46,350.

Minimise your National Insurance Contributions
The Class 1 National Insurance (NI) thresholds for this tax year are £116 per week or £8,424.

If you are a director shareholder, your company can pay you this salary and you won’t have to pay any NI but will still get the full state pension contribution for the year.

Use your partner’s personal allowance to make a tax saving
There is still the marital tax break available in 2018/19. This means if your partner/spouse is not fully utilising their personal allowance and your income falls in the basic rate band then they can transfer all or part of their personal allowance to you. This can give a maximum tax saving of £237.

Optimum profit extraction for a single director limited company
Even with this year’s reduction in the dividend allowance to £2,000, the optimum profit extraction for a single director limited company is a salary of £8,424 with the remainder of the income taken in dividends.

Remember this strategy only works if the company makes a profit for the year after corporation tax is paid. If you don’t think that the company will make sufficient profits, then it might be better to take a salary equal to the personal allowance (£11,850). You will need to take into account other sources of income, so we would recommend talking through the options with your accountant.

If you have any questions on how limited companies can be more tax efficient, please get in touch.

Comments are closed.