Planning Your Director’s Tax [PART 1]

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Following the new tax year, there are new updates to allowances and taxes as shared by the UK government. As directors and business owners, it’s important for us to keep abreast with these figures - such that planning our taxes and managing our company finances becomes easier.

Especially during the COVID-19 pandemic, careful tax planning is important for your business to reap its best rewards.
In this blog post, let’s take a look at the newest updates in dealing with a range of tax issues, including the newest pandemic support measures.

 

1. The Newest Updates in 2021/22 (at a glance)

  • The income tax personal allowance is maintained at £12,570,  with the basic rate limit maintained at £50,270 for most of the UK
  • The exempt amount for Capital Gains Tax (CGT) is  £12,300, with rates maintained at 10% and 20% for basic and higher rate taxpayers respectively 
  • Corporation Tax remains at 19%, but will increase to 25% from April 2023. However, companies with chargeable profits of £50,000 or less will still be liable to tax at the current rate of 19%.
  • The dividend allowance remains at £2,000, with taxes maintained at 7.5%, 32.5% and 38.1% for basic, higher and upper rates respectively 
  • Personal savings allowance remains at £1,000 for basic ratepayers and £500 for higher ratepayers
  • The pensions lifetime allowance is frozen at £1,073,100.

 

2. What are the newest pandemic support measures?

 

A. Coronavirus Job Retention Scheme (CJRS)

You can claim for some of your employee’s wages if you have put them on furlough or flexible furlough because of coronavirus. Before you go ahead, though, make sure you note the following: 

  • You are registered for PAYE (Pay As You Earn)
  • You cannot claim the COVID-19 Grant for the self-employed, although you hold office of the director 
  • Your company can furlough a director under the COVID-19 Job Retention Scheme. 

 

B. Temporary suspension of the wrongful trading on insolvency rules

Because of the coronavirus situation, wrongful trading rules are relaxed for the time being. This serves as some ‘breathing space’ for companies in difficulty, and sufficient time to explore options for a rescue.

 

C. Statutory Residence Test

The government has provided some guidance on the impact of the coronavirus pandemic on the Statutory Residence test. 

 

D. Director’s Tax Return 

HMRC has updated their guidance on director’s tax returns. Where all income is taxed at source and there is no further tax to pay, you don’t have to register for and file a Self Assessment return.

 

3. How can you plan your remuneration cost-efficiently? 

 

A. Salary 

  • You can pay a salary of between £120 and £170 per week, so that gaining state benefits and avoiding Employers’ NIC is possible. 
  • While the Employers' NIC allowance remains at £4,000, companies cannot claim the allowance if the director is the only employee. 
    • Tip for sole employee/director companies: You can consider introducing a spouse or other family member as a paid employee, so that you benefit from the employment allowance. 

 

B. Savings/ Interest 

  • If your savings and non-savings income is less than £17,570 combined, you can enjoy the 0% £5,000 savings band
  • Note: Dividend income doesn’t qualify under your as savings or non-savings income.
    • Tip for those who don’t gain this benefit: There’s still a tax advantage for the company if you’re able to charge it interest. In this case, it may be cheaper for a director to borrow money rather than the company itself.
  • Interest paid on a loan by a director should qualify for tax relief if the necessary conditions are met.

 

C. Rent 

  • Want to maximise your savings allowance from before? Make sure rent is taken into account first.
    • Tip for those working from home: If you charge your company rent for using your home, you can offset some costs such as light and heat. Your net rental income would be declared under Self Assessment. 
  • However, note that the £1,000 Allowance for property income doesn’t apply to rental income paid by a close company.

 


We hope this was a useful guide in helping you learn more about updates in the new tax year, as well as planning your taxes as a director. Keep a lookout for Part 2, where we delve deeper into tax-efficient extraction of profits and splitting your income and assets. 

 
 
 
 
 
 
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