Tax, NI and wills – what you need to know.

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Tax, NI and wills – what you need to know.

With only 2 weeks to go, many businesses will be in a rush to ‘finish up’ for Christmas and as business owners we know how stressful this can be, especially with all the new tax & NI information coming out, so forearmed is forewarned…

Key tax and NI factors

Whilst the 2017 Autumn Budget wasn’t dynamic, the Chancellor nudged the personal (tax-free) allowance and basic rate band toward the goal he set for this parliamentary term, so NI thresholds will also increase to keep pace with the tax changes.

The table below shows the current and next year’s tax and NI thresholds, plus tax allowances.

Maximum tax and NI effect

If your earned income for the current tax year (2017/18) and next (2018/19) is greater than the personal allowance plus basic rate band. The changes will save you £340 income tax, but cost you an extra £103 in NI if you’re a director or employee, or £73 if you’re self-employed or a partner in a business. That’s a net saving of £237 or £267. Not FAB, but at least it’s heading in the right direction.

Note. The figures above are for earned income only. Where your income includes or is entirely derived from savings or investments, e.g. interest or dividends, the tax and NI position is different.

Low salary plus dividends

If you’re a director shareholder who follows the popular tax and NI-saving strategy of taking a low salary plus dividends, the change announced in an earlier budget to reduce the dividend nil rate band (DNRB) will also affect your tax bill for 2018/19.

2017/18 compared with 2018/19

If you’re a higher rate taxpayer, and at least £5,000 of your income for this year and £2,000 in 2018/19 is dividends, the effect of the budget changes and the reduced DNRB will mean you’ll pay an extra £199 in tax on the same amount of income.

This is mitigated if your company pays you a little extra to make use of the personal allowance and basic rate band increases which apply for 2018/19.

Take a tip from Marden

The most NI efficient level of salary for 2018/19 is £8,424. At this figure neither you nor your company will be liable to Class 1 NI. The most tax efficient level of salary depends on how much income you receive, apart from that you take from your company in salary and dividends. Assuming nearly all your income is from your company, a salary of £8,424 and the rest in dividends, ideally at least £37,925 or more, is optimal…

Crunching those numbers

But don’t get hung up on hitting the optimal figure for tax efficiency spot on unless you can be absolutely certain of what your total income will be for 2018/19. Concentrate on setting your salary at £8,424 and drawing enough dividends to use your DNRB in full if possible.

So in conclusion…

  • If you’re a higher rate taxpayer in 2018/19 you’ll pay around £250 less in NI and tax on the same amount of earnings compared with 2017/18.
  • However, if £5,000 or more of your income is dividends you’ll be at least £199 worse off.
  • If you’re a director shareholder the most NI-efficient salary for 2018/19 is £8,424.

Thinking Christmas… wills, inheritance tax and trusts

At this time of year, our thoughts turn to ‘family time’ whether we choose to embrace it or not. So with that in mind, we looked carefully at how we can be more involved with your family in a helpful and supportive way and whilst we appreciate no one wants to dwell upon the subject of our own mortality, we are pleased to be able to offer our own expert on the subject of wills, inheritance tax and trusts. So if it isn’t something you have thought about, maybe now is the time to really…

Focus on the things that count!

Thanks for reading and remember, if you are looking for a friendly jargon-free accountancy firm then we’re here to help – give us a call on 01737 464 050 or drop us an email on info@mardenandco.co.uk for a quick chat about how we can help.