Taking profit – structuring your income tax for efficiency in 2018/19

Big is not always better as ‘serious breaches’ mean £10m fines for ‘big four’ accounting firms
13th April 2018
Our business guide to Making Tax Digital – are you ready?
27th April 2018
Show all

Taking profit – structuring your income tax for efficiency in 2018/19


As an accountancy firm, Marden & Co’s main point of company contact is usually the Business Owner or MD. We appreciate that, as a director shareholder of a company, you have the flexibility and opportunity to organise your tax affairs in the most efficient manner.

With the new 2018/19 tax year recently commencing on 6th April, in this article we look at some ideas on how best to approach it. You can of course save yourself the reading time and contact us for a no-obligation consultation on what you can do by giving us a call on 01737 851 761 for a no-obligation chat or just drop us an email on info@mardenandco.co.uk

But if you’re interested… read on!

Do the normal stuff in 2018/19

Most company director shareholders are exposed to (and therefore bored of) the same old tax planning year on year. There’s a reason for this, as the advice is valid. Coupled with changing rate bands and your personal circumstances, there is always room to review your position within the stipulations to optimise your tax-efficiency… but where to start?

Get going

Most advice suggests starting with the question ‘how much should I take from my company?’ However a more prudent approach is to first understand income in 2018/19 from other income, such as interest and dividends from investments, rental incomes from property etc. Further to this you can make an informed decision on the amount and type of income to withdraw from your business to maximise tax efficiency holistically.

For example, Bob is the only Director and Shareholder of XYZ Ltd. Each year the business makes more profit than Bob requires as income. From other sources he expects 2018/19 income to be: £2,500 taxable profit from property lets, £150 bank interest and £400 dividends from other company shareholding. Knowing this, he can strategically plan his company pay for 2018/19.

Personal allowance

For the 2018/19 tax year you are permitted £11,850 as tax-free personal allowance. Billy should utilise this in full by taking a salary minus other taxable income streams as outline above.

Marden Handy Tip No. 1 – be sure to take a minimum salary of £6,032 but no more than £8,424 throughout 2018/19 to ensure you are entitled to a full year of NI credits at no actual NI cost that will count toward your state pension.

Marden Handy Tip No. 2 – above optimising state pension contribution, be sure to calculate and take the maximum salary allowance without NI becoming payable.

Dividend allowance

Utilise your full dividend nil-rate allowance.(£2,000) Your accountant should advise on the best way to manage and extract payments from your business between salary and dividend allowances. If not give Marden and Co a call who will advise you .Dividends are more tax-efficient than salary if when added to other income they are still within the basic rate and band of tax.

Tweaks and optimisation

Tax relief’s raise the amount of income that can be received tax-free or how much is payable at basic rate (as opposed to the higher rate). Where your financial plan allows, only take the income you need to stay within the basic rate band. Toward the end of the 2018/19 tax tear you will have a fuller understanding of your other income tax and reliefs – this facilitates taking a ‘final dividend’ for the year, to use any remaining basic rate band allowance.

But why worry about all of this? Why not take on an accountancy firm that you can trust to take care of these concerns for you, who cut through the jargon and offer you increased efficiency, assurance of peace of mind. Get in touch with Marden & Co today – you can give us a call on 01737 851 761 for a no-obligation chat or drop us an email on info@mardenandco.co.uk