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Accountants in Medway - Sinden Thackeray Partnership

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Make the Best of Allowances

Newsletter issue - June 2015.

As the sole owner/director of your company you face a dilemma over how to extract income from that company. If you pay yourself a salary of more than £8,060 per year you will have to pay class 1 NIC at the rate of 12% on the excess pay above that threshold up to £42,385 pa. However, income tax is not due until your salary tops £10,600 (the value of your personal allowance for 2015/16).

One solution is to take a salary of up to £8,060 and any further income as dividends of up to £30,892 pa (£34,325 gross including the 10% tax credit). This combination would mean a zero tax and NIC bill, but gives you an NI credit to qualify for the state pension. However, £2,540 of your personal allowance is "wasted" as the 10% dividend tax credit can't be reclaimed when the personal allowance is set against a dividend.

If your spouse receives a salary that exceeds their personal allowance, but does not pay 40% tax another adjustment is possible. You can now transfer £1,060 of your personal allowance to your spouse. This will allow them to save tax of £212 (£1,060 @20%).

However, to avoid you slipping into the 40% tax bracket you must also reduce the level of dividends you take to a maximum of £29,938 (£33,265 gross) for 2015/16. The result is that the family as a whole has the same tax allowances, but the income tax paid has decreased by £212.

 


Christopher Kember FMAAT is licensed and regulated by AAT under licence number 7213. AAT is recognised by HM Treasury to supervise compliance with the Money Laundering Regulations and Sinden Thackeray Partnership is supervised by AAT in this respect.