How the new Tax and NI rates will affect you as a Director – Business Owner
The Chancellor’s first Autumn Budget included a positive change in tax-free personal allowances and NI limits from 6th April 18.
So how will that affect business owners and director’s tax bills and how should you plan to use these increased allowances?
In simple terms let us disassemble the jargon and give you the main points!
The personal (Tax-Free) allowance, basic rate band & NI insurance have increased in line with their parliamentary term goal and NI thresholds will also increase to keep pace with the tax changes. * based on earned income
Personal Allowance increases from £11,500 to £11,850
Basic Rate band increases from £33,500 to £34,500
NI Annual Thresholds:
Lower earnings / profit threshold £8164 to £8424
Upper earnings / profit threshold £45,000 to £46,350
So, to explain, if your earned income for the current tax year 2017/18 and the upcoming 2018/19 is greater than the personal allowance plus the basic rate band, the change will save you £340 income tax, but will increase your NI by £103 if you are director.
As director shareholder using the popular Tax and NI saving strategy of taking a low salary plus dividends this will be affected by a previous budget announcement to reduce the (DNRB) Dividend Nil Rate Band and will also affect your tax bill for 2018/19.
If you are a higher rate taxpayer, and you have drawn dividends of at least £5000 for this year and £2000 for 2018/19 you will pay an extra £199 in tax on the same amount of income.
We recommend the most NI-efficient level of salary for 2018/19 is £8424. Neither you nor the company will be liable to Class 1 NI. The most tax efficient level of salary depends on how much income is received apart from what is taken from the company in salaries and dividends.
*The ideal option is £8424 in salary and the rest in dividends at least £37,925 or more to negate your tax bill.
If you have any questions or if you need any further tax advice, please feel free to contact us Tel: 02890 355848
We would be delighted to assist with any aspect of your business to help you build and grow financially.