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Meaning - An easy and pleasant life.

We strive to make the financial aspects of running
your business or organisation as easy as possible.
We're more than just accountants.

We can help you grow your business, and advise you
on the best strategy to give you...the life of Riley.

Optimum Level of Salary and Dividends

Date posted: March 26, 2018

For many businesses trading as a limited company, taking a low basic salary with the balance of income extracted as dividends, is a common tax planning strategy.

The theory is as follows:

  • You take a low tax efficient salary no higher than the personal allowance so that it does not attract personal tax.
  • You should make sure the salary is high enough for national insurance purposes i.e. that it counts as a year’s ‘stamp’ for your national insurance history to help protect your future entitlement to state pension and other benefits.
  • The salary is a tax allowable cost for your business so corporation tax is saved at 19% (corporation tax rate for 2018/19) on the gross (pre-tax) salary.
  • Any additional amounts you extract from your company are treated as dividends which do not attract national insurance, therefore you are not paying any more national insurance than you need to be.
  • Please note that dividends are not treated as a tax allowable expense (unlike a salary) so your company does not save corporation tax on the dividends.

Many people choose to limit their total income to not go into the higher tax band (£46,350 for 18/19) so they are not taxed at the higher levels of tax, but this will be a personal choice and a balance will need to be made between tax efficiency and how much of the available profits in your business you want to extract.

Salary

The introduction of the Employment Allowance in April 2014 enabled employers to not pay the first £2,000 of employers’ national insurance. This then increased to £3,000 for 17/18 and 18/19.

Typically the employment allowance means that it is slightly more tax efficient to take a gross salary all the way to the tax free allowance level (£11,850 for 17-18), however HMRC announced that from 16/17 the Employment Allowance will not be available to companies where the only person on the payroll is a director, i.e. ‘single director employee’ limited companies.

Unfortunately what they have left open as a ‘grey’ area is the situation where there is a husband and wife who are both directors taking a salary with no other employees.

As things stand it would appear this would be ok, however it seems to be that HMRC’s intention is to block companies that have no ‘real’ employees from claiming the employment allowance (the government are trying to encourage small businesses to take on employees).

Our stand on this currently is to lean on the cautious side – in the situation of a husband and wife director payroll we would advise only claiming the employment allowance if both parties have an active role in the day to day business.

There are two National Insurance thresholds you need to be aware of:

  • Lower Earnings Limit – as long as you earn above this you are protecting your entitlement to future state pension and benefits, without necessarily paying any National Insurance.
  • Primary Threshold – if you earn above this, you have to start paying National Insurance.

So the sweet-spot is to go up to the Primary Threshold but no higher.

The National Insurance Primary Threshold for 18/19 is, £162 per week or £8,424 for the year.

Therefore, we would suggest a monthly Gross Salary of £702 which stays just below this threshold.

Dividends

Dividends are taxed as follows:

The dividend allowance means that an individual’s first £2,000 of dividends are tax free.

Over and above this £2,000 the dividend income is taxed as follows:

  • If you have any un-used personal allowance £11,850 for 18/19 (£11500 17/18) then that element is tax free
  • Any dividends within the basic tax threshold and up to £46,350 for 18/19 (£45000 17/18) attract a tax charge of 7.5% (basic tax threshold = basic rate band + personal allowance)
  • Dividends above the basic tax band (£46,350 for 18/19) are charged at 32.5%
  • Additional rates of tax will apply at the upper tax band £150,000

Assuming you take a salary of up to National Insurance limit of £8424 (£8164 17/18) you can take dividends of £37926 (£36836 17/18)

This is because you have spare personal allowances, which together with the £5000 dividend tax free allowance, reduce the dividend amount which is subject to tax at 7.5%.  See the table below:

Tax Year 18/19 Tax Year 17/18
£ Annual £ Annual
Gross Salary 8424 8164
Dividends 37926 36836
Total Gross Income 46350 45000
Tax on Dividends (2438) (2138)
Net Cash in Pocket 43912 42863

Conclusion

Since we are fast approaching the end of the 17/18 tax year, consider whether you have fully utilised your personal tax allowance, your dividend tax free allowance and your basic rate band.

It may also be appropriate to look at who owns the share capital and consider gifting share to other members, such as spouses, partners or adult children

Dividend Templates 2017

Date posted: March 20, 2017

To help you with completing your dividend paperwork, the templates for the minutes and tax voucher are below. A link to our January blog  provides you with details on how to pay yourself a dividend.

Dividend Minutes Template

Tax Voucher template

Please do not hesitate to contact us should you need any help.

https://www.rileyandco.co.uk/2017/01/16/help-pay-dividend/

Life at Riley’s

Date posted: November 7, 2015

Wow! What a busy year it has been at Riley & Co so far.

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January is always a very busy month, but it also brought the safe arrival of a Riley baby to our Admin Assistant Kayley Moran and her partner Joe, who welcomed into the world a little boy, Ethan.

As we headed into the second quarter of the year, Riley & Co hosted a well-attended Pensions Seminar held at Southwood in Halifax.  Speakers, Ben Huston from Sage and Ben Armer from Nest, together with our director, Simon Walton delivered a detailed presentation regarding the process for companies to embrace the new government initiative for employee pensions. If you require any information regarding Pension Auto Enrolment, please contact our office on 01422 341019.

IMG_2006Quarter 2 also brought the safe arrival of a beautiful daughter to our accounts team member Farzana Rasool and her husband, Maeed. Here is a picture of Farzana and Aizah when they came to visit the Riley team.

As we moved into autumn, it was with much sadness that we bid farewell to Bernie Wilson after 10 tremendous years of service. She has been headhunted to join an ex colleague who now runs his own practice in Bradford specialising in GP accounts.  We wish Bernie every success and hope that her new employers appreciate just how fortunate they are to have her on board!

 

sarah-crawfordWe wish to congratulate Sarah Crawford, who has been promoted to our Accounts & Audit Senior Manager with effect from the beginning of September.  Sarah has taken over the responsibility for managing all of the accounts workflow and for line managing all accounts staff.  Sarah will also continue to look after her Charity accounts.  With Sarah’s extensive experience, she has already embraced her new role in Riley’s with a seamless transition to ensure business as usual in the accounts team.

 

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As we progress into the final quarter of the year, we are delighted to announce a new Tax Manager to Riley & Co, Tim Musgrove.  Tim joined us on 19 October and brings a wealth of experience in Taxation and Payroll services. Tim will be a great asset to the practice and we are delighted to have him on board.

If you need any advice, then the team at Riley & Co are always happy to help.

Auto Enrolment – are you ready?

Date posted: May 13, 2015

Minster Series – Banking and the Economy

Date posted: February 6, 2014

Vicky will be taking part in the public debate on Monday 17 February 6.30 until 8 pm at the Halifax Minster.

The Key note speaker will be David Nicholson, Group Director of the Halifax Community Bank, Vicky is also joined on the panel by Steve Leigh from Mid Yorkshire Chamber of Commerce. The event will be Chaired by Tony Robinson the bishop of Pontefract.

This is the last in a series of public debates on topics affecting society in Britain today. Come along and have your say, register here  http://www.eventbrite.co.uk/o/halifax-minster-4584539697

Christmas Opening Hours

Date posted: December 20, 2013

Please note our offices will close for the Christmas period at 12pm on Tuesday 24th December 2013 and will re-open at 8am on Thursday 2nd January 2014.

Merry Christmas & A Happy New Year from all at Riley & Co.

Dividend Paperwork Templates

Date posted: December 3, 2013

Dividend Minutes Template Tax Voucher Template

Please click on the links above for templates to assist you with completing the documentation when a dividend is voted.

Please do not hesitate to contact us should you need any help.

Halifax Courier Business Awards

Date posted: November 26, 2013

We were delighted to be shortlisted for the 2013 Employer of the Year Award, especially as the nomination came from one of our staff members.

Unfortunately on the night we weren’t declared the winners, we lost out to another great organisation Suma Foods which is a workers cooperative and Europe’s largest equal pay employer, so definitely tough competition and a worthy winner.

We did however have a fantastic evening, the team all enjoyed the opportunity to get glammed up and enjoy the limelight that came from being shortlisted and listen to the wonderful success stories from the local business community.

Bus awards 2 photoBus awards photo

Calderdale College Dragons Den

Date posted: November 26, 2013

DragonsDen-50Vicky Atkinson was invited to take the role of a judge in the Calderdale College Dragons Den challenge which was one of a number of Enterprise Week activities.

Each faculty held their own shortlisting event in the morning and then in the afternoon the five finalists were given the opportunity to pitch their ideas to the dragons.

The winning team were from the Business Department who came up with the smart idea of an app to help students manage their assignments and deadlines which links in to the College intranet resource facility.