Knowledge

Get ready for end of tax year 5th April 2019

Posted on Mar 5th, 2019 | Tax

Calculations | Get Ready For End Of Tax Year | Crunch

We’re fast approaching the end of the tax year on 5th April, and now is usually a good time to get to grips with any tax changes, so you can maximise your tax efficiency for the outgoing tax year and get your business prepared for the new tax year.

You’ll also want to stay up-to-date with the current tax rates and thresholds.

Let’s take a look at what you’ll need to know. Click to skip to the section you need, or read on to get the full rundown.

It’s vital that any dividends are issued and paid by your company before 5th April 2019 to be included in your personal Self Assessment with HMRC for the 2018/19 tax year. This is important to ensure you’re maximising your tax efficiency by utilising your personal tax-free allowances and HMRC tax thresholds.

As a reminder, here are how dividends are taxed in 2017/18 and 2018/19:

2018/19 2019/20
Dividend tax-free allowance £2,000 £2,000
Personal Allowance £11,850 £12,500
Dividend basic rate – The lowest rate of tax on dividends 7.5% on earnings up to £34,500 7.5% on earnings up to £37,500
Dividend higher rate – The middle tier of tax on dividends. 32.5% on earnings above the basic rate up to £150,000 32.5% on earnings above the basic rate up to £150,000
Dividend additional rate – The top rate of income tax for high earners. 38.1% on earnings above £150,000 38.1% on earnings above £150,000

Note: The dividend basic and higher rate amounts assume all of the Personal Allowance is utilised.

Tax-free:

For the 2018/19 tax year, provided your only personal income before dividends is a salary of £8,424 (set at the 2018/19 National Insurance Primary threshold), you can take up to £5,426 in tax-free dividends by using your dividend allowance of £2,000 and your remaining, unused, Personal Allowance of £3,426 (£11,850 [personal allowance] – £8,424 [salary]).

Basic Rate:

The next £32,500 in dividends is then taxed at the basic dividend rate of 7.5%. This means you can issue up to £37,926 in dividends with a salary of £8,424.

Higher Rate:

Any dividends above £37,926 are then taxed at 32.5% until your total income is £100,000. After this point, your personal allowance reduces by 50p for each additional £1 you earn until the personal allowance is exhausted. Your dividends are taxed at 32.5% until your income is £150,000.

Additional Rate

Once your total income is above £150,000 then further dividends will be taxed at 38.1%.

If you have other sources of income or benefits in kind, such as rental income, external dividends, a company car, or other employment or sole trade income, this will mean more tax will be due, as the basic and higher rate thresholds will be used quicker.

For example: if you had a benefit kind with a cash value of £1,000, it would reduce the Personal Allowance and other thresholds by £1000, as it counts as salary when calculating tax.

When issuing dividends, it’s important to make sure that your accounting records are up to date. For users of cloud software, such as Crunch, your business bank account should be reconciled and you should ensure your company accounts are up to date – with all expenses, pension contributions, salaries, and paid invoices accounted for.

This means you’re able to make an accurate assessment of your company profits and any tax due. You can then calculate the dividend you can pay yourself.

Don’t forget that any dividends must come from available company profits. If you take more than is allowed you could face penalties and interest as it’s treated as a Director Loan.

If you’re running payroll, even for a single employee, then you mustn’t forget to file your final Full Payment Submission (FPS). This is an HMRC Real Time Information (RTI) requirement and you could face a £100 fine if you don’t file your end of year Full Payroll Submission (FPS) by 5th April 2019.

If you’re a Crunch client then further details on how to do this in the Crunch system can be found in our Final Payroll Submission Help Centre article.

You should record payroll runs for March to maximise your tax-efficient salary, so check the amount you have been paid since 6th April 2018.

For Crunch clients: As soon as the 6th March arrives, you can record your final payroll run for the current tax year. You will receive full instructions on what to do in an email from your client managers, or you can read our Final Payroll Submission Help Centre article.

If you want to make pension contributions this year, you need to make sure these payments are received by your pension provider by 5th April 2019.

If you run a limited company then making payments through your limited company is usually more tax-efficient. You can also pay into your pension through your monthly payroll or make lump sum contributions periodically throughout the tax year.

The total amount that can be contributed per year and still be tax-free is £40,000. Up to that limit, the government provides tax relief at the basic rate of 20% and this is added to your contributions by your pension provider.

If you are a higher rate taxpayer, you can claim further tax relief through your annual Self Assessment return. You are allowed to include the full £40,000 amount on your Self Assessment and the government will provide further tax relief of 20% (if you pay tax at the higher rate of 40%). So you claim back £8,000 from the government through your annual Self Assessment.

Don’t miss out on Pension Tax relief

All of this means that, if you ’re a higher rate taxpayer, and you make contributions directly, your pension pot can be topped up by £1000 and it would cost you only £600.

As a basic rate taxpayer, your pension pot can be topped by £1000 and it costs you only £800.

While you’re thinking of future investments, you may want to check if you could make any payments into an ISA or other tax-efficient savings which also have limits on what you can pay in each tax year.

Please speak to your financial advisor for more information and bespoke advice. If you don’t have an advisor then we can help. Find out more about our Investments and Pensions advice service.

With many limited companies choosing to have 31st March as their financial year end, it can be a daunting undertaking for first-time limited company directors, but with our comprehensive year end checklist you’ll know exactly what you need to do.

Normally, there are a few changes that you’ll need to be aware of but, thankfully, there aren’t too many this year.

We’ve put together an article with the personal and business tax changes for the new tax year starting on 6th April 2019.

Join Crunch Sales Team Manager Ben Schaefer and Technical Senior Accountant Michael Awuye as they provide some information about the major changes coming for the new, 2019/20 tax year, and what you need to do.

You can download the webinar slides here.

Need some help?

All of the above comments are for your information only. We always recommend speaking to an accountant for a more in-depth analysis of your circumstances. If you don’t have an accountant or are looking to switch, give our friendly team a call on 0333 311 8000 or arrange a free consultation.

Join Crunch Chorus:
The free community for the self-employed

You'll get access to a range of benefits, such as invoice software, jargon-free business guides, great networking opportunities, discounts, plus much more

Written by Tom West

Useful tools and resources

Business guides

From understanding expenses to starting a limited company, we've a range of jargon-free business guides for you to download and keep.

Invoicing software and templates

Create, send and store sole trader invoices in a snap with our free invoice software. You can also download a selection of invoice templates for all business types.

Take-home pay calculator

Use our Take-Home Pay Calculator to work out your true earnings and see if you could save money with a different company set up.