As the end of the current financial tax year is fast approaching it’s a good time to think about whether you have fully maximised the amount you can withdraw from the company tax free and at the basic rate of dividend tax.
Assuming your company makes sufficient profits the total tax free amount you can withdraw, not including other sources of income and using our recommended low wage/higher dividend split, is £13,850 per financial tax year (personal allowance of £11,850 + £2,000 dividend allowance). You can take a further £32,500 of dividends, at the 7.5% dividend tax rate and before the higher rate of 32.5% is charged. This would usually breakdown as £8,424 salary for the year (£702 per month) and dividends of £37,926.
In most scenario’s it makes sense to withdraw as much money from the company at the lower tax rates rather than let any reserves build up for a future year as your circumstances can easily change, as can the tax rates and allowances.
There are certain things that will reduce or restrict this tax free allowance of £13,850 and the additional basic rate dividends of £32,500:
– You have other sources of income such as rental property, interest, dividends from shares, benefit in kind or any other taxable income.
– You only started working through your company after 6th April 2018 and have earned wages from a previous job or have another employment.
– Your company does not have sufficient profits available.
Any of these mentioned above will restrict the amount you can take out as dividends before being taxed. If you have received any of the above income or unsure of what you can take please get in touch with us in advance of the year end (5th April 2019) and we’ll be happy to help.
Important note: Final dividends MUST be paid prior to the 5th April 2019 or they will not be included in the current financial years calculations and you may lose certain allowances.
If you are a Scottish tax-payer, please be aware that your tax rates and allowances are different to the rest of the UK – if you need a bespoke illustration of this please don’t hesitate to ask.