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.
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:
|Dividend tax-free allowance
|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.
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How much can I take in dividends for the 2018/19 tax year?
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]).
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.
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.
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.
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Make sure your records are up to date
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.
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Payroll deadlines and submissions
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.
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Maximise your pension contributions
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.
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Don’t forget your annual ISA allowance
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.
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Year end responsibilities
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.
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What changes will there be from 6th April 2019?
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.
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End of tax year 2018/19 webinar
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.
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Your End of Tax Year questions:
Q1. Question about dividends and salary – Is the dividend allowance per business or per director?
Each limited company director will have their own personal allowance, so the figures we used in the webinar are per director – don’t forget, these figures assume the director has no other personal income.
Q2. Will there be a new (very helpful!) tax calculator excel uploaded onto your website to take the new personal allowance into account?
Yes indeed! In fact, it’s already available on our personal tax estimator article.
Q3. What is the limit for employer contributions to pensions as a business expense? Is this limit available for any employee, or only a director of a limited company.
This can be a complex area and it may be best to speak to your accountant and financial adviser to decide the best way to make pension contributions.
If you’re asking about the auto-enrolment rules then for the 2019/20 tax year the employers minimum contribution rises to 3% with an overall minimum contribution of 8% (employer + employee).
If you’re asking about personal payments to a pension plan then you can make pension contributions and get tax relief on any amount up to your annual earnings, or £3,600 whichever is higher. Importantly, there’s an annual allowance of £40,000 in any tax year, though you may be able to make higher payments using the “Carry forward” rule if you have any unused allowance from previous years.
There’s a lifetime allowance (£1,030,000 for 2018/19 tax year) on pension contributions.
Usually, making pension contributions through your limited company is the tax-efficient way to do it, as this means it’s usually an allowable expense for your company and reduces your Corporation Tax liability. The company must have had earnings or retained profits to cover the contribution.
Q4. What’s the Employment Allowance?
The Employment Allowance allows certain businesses who employ workers to reduce their annual National Insurance Contributions by up to £3,000. Further details are available in our article “The £3,000 Employment Allowance explained”
Q5. How long do we need to keep the receipts for expenses, please?
Records need to be kept for 6 years, as explained in our company records article, but you don’t have to worry about keeping lots of paper around. You can keep them in digital or electronic forms using apps like Snap among others.
Q6.Any change in pipeline for ir35?
Yes. Changes are being introduced for the private sector. The changes follow those introduced in the public sector in 2017. From April 2020, it will be the end-client who is responsible for determining your employment status, not your limited company.
So, if you work through your limited company for a large or medium sized client, the client will be responsible for assessing if your contract falls within IR35 and also make deductions from the amount they pay you. You will no longer be entitled to the 5% allowance under the deemed payment calculation.
The government has announced a new consultation about the introduction of the new IR35 rules.
Q7. If a director has not created a payroll run for this financial year, is there anything they can do to maximise their tax efficiency?
Yes. Assuming you have been filing nil monthly RTIs, all you need to do is create the payroll run now and you could take it in a lump sum before filing the final Full Payment Submission with HMRC. If you haven’t been doing any filing at all, you might want to speak to our payroll department as there’s a likelihood of having fines on your HMRC account and you will need to update HMRC for the missed months to wipe off any penalties before filing the lump sum amount.
Q8. Do you expect the government to announce any relief/allowances to assist companies such as mine that export goods/services to the EU, in the event of a non-smooth Brexit? Could this be announced mid tax-year if they wanted to or would it have to wait until FY20/21? –
At present, none of the publications that HMRC has put out in preparation for a no deal Brexit deal with reliefs/allowances. Instead, they talk about processes. As you export to the EU, please see the gov.uk article on traders exporting to the EU for more information.
Q9. If you work from home only one day a week, can you still claim the £4 a week business expense?
Yes. HMRC guidance doesn’t state how many days you have to work from home to claim this amount. Our article on working from home has more detail.
Q10. IR35 – if I only have one main client, would that be a problem?
Not necessarily. It depends on your contract and your actual working practices. It’s a complicated area, so we’ve written a detailed article around how HMRC decide if a contract is inside or outside IR35. We also offer an IR35 contract review service.
Q11. Can you explain Entrepreneurs’ Relief?
Entrepreneurs Relief is an incentive/relief provided to ‘wealth creators’. If you are a higher rate taxpayer and you close your company with a bit of money/assets in it, you’ll be paying Capital Gains Tax at 20%. With entrepreneurs relief, you could get it all taxed at 10%. Please note, however, that there are anti-avoidance (TAAR) rules to prevent abuse (phoenixism). Our article “What is Entrepreneurs’ relief” has more information.
Q12. What changes are expected should companies hold bank accounts in the EU but are a UK limited company? Does this change tax liabilities or is it just more paperwork hassle?
No changes expected. Having a foreign bank account doesn’t make the company non-UK resident. So there will be no impact on Corporation Tax liabilities.
Q13. Are travel expenses still claimable if you’re a “deemed employee” under IR35 – i.e. your normal place of work?
No, but still pay for it through the company as this could be covered by the 5% allowance in the company. Read our article on “Can IR35 contractors work through a limited company?” for further details or speak to your client manager.
Q14. If I’m closing my company next month (within the next tax year though) is it more tax efficient to withdraw dividends to the lower tax bracket limit this tax year? Or leave the funds in there until I withdraw the funds when the company is closed?
This requires tax planning and will be best to speak to one of our expert accountants. It depends on your circumstances. As it is close to the tax year end, you might be able to draw some dividends in the 2018/19 tax year and more in the 2019/20 tax year so you can close the company down by voluntary strike off if net assets in the company are less than £25,000. If the assets are more than this, you could still do the same but you will have to close via members voluntary liquidation (MVL) which might help you get the Entrepreneurs’ Relief as well. We have a detailed article on the tax implications of closing your limited company
Q15. Regarding “Trivial Benefits”, other than the value limits clearly stated by HMRC and in the Crunch article on the topic (£300 total, £50 per expense), are there any limitations on what these expenses can include (e.g. any product)?
Yes. HMRC guidance excludes the following:
- benefits in respect of ill-health or disablement of an employee during service
- benefits in respect of death by accident of an employee during service
- benefits under a ‘relevant life policy’
More information on trivial benefits can be found on the gov.uk site.
Q16. My pension company have suggested I should make pension contributions at a ‘personal level’ i.e. direct debit from my personal account. Am I right to assume the benefit is really if I am paying into the fund directly from my Company (to avoid the 19% Corporation Tax)?
You can pay into your pension from both company and personal accounts but if you were paying from your personal bank accounts, the funds in your personal bank accounts would have been taxed already as salary or dividends, whereas if paid from your limited company, the funds haven’t been taxed and this saves you Corporation Tax at 19%. You get tax relief on any personal contributions you put into a pension fund when you file your annual Self Assessment. See also our earlier question on pension tax relief above.
Q17. My accounting year is not aligned with the tax year, how do I calculate my maximum dividend this tax year when I don’t have the profit for the tax year?
You might need a bit of personal help from one of our accountants, but let’s try to walk through it: Although your company year is not aligned with the tax year, your salary is always aligned. So you will definitely have a P60 after March 2019 or a payslip that says month 12 or week 52/53. If that amounts to £8,424, you only need to work out the total amount of dividends you’ve issued between 6th April 2018 to date. If this is less than £37,926, then provided you have profits to cover the amount, you can issue the remaining amount as a dividend to maximise your basic rate dividend band for the tax year. Our article on dividends explains the annual allowances and how you can utilise them.
Q18. How can you benefit from your Capital Gains allowance
When you dispose of assets and make a gain on their disposal, that’s when you get to use your Capital Gains Allowance. So if you aren’t disposing of an asset, it will be difficult to utilise this. If you for instance disposed of some shares that you had bought, and had made a profit on the sale, then, the allowance will be applied to the gain before you pay Capital Gains Tax at the relevant rate on the remainder.
Q19. Is it true that If you are working for more than one end client you can’t be under IR35? – For example 3 days with one client and 2 days with another?
Working for two or more different clients makes it easier to show you’re not providing service personally and it’s the company providing services. However, it’s still possible to have one or both of the contracts being caught under IR35 rules. As explained in ur article on IR35 and contracts, it depends on the nature of the contract and working practices between you and the client.
Q20. Is it OK to claim for a monthly travel card if I buy it for convenience to travel around London but am not using it on a daily basis?
If the travel is wholly and exclusively for the business, then it can be purchased by the company. However, if the travel is to a permanent place of work, you cannot claim this from the company. If it is a temporary place of work, there are still limitations to claiming travel. If you have a monthly travelcard for business use then you are also able to make personal journeys using it.
Q21. Is there any way I can claim a personal trainer? (about 240 pounds per month)
No. This is a personal benefit to you, not the company. The only possible scenario we can imagine is if there was an accident at work and the employer had to pay a personal trainer to nurse you back to health but such instances would normally be covered by insurance.
Q22. If a client is overdue with their payment which is supposed to be for this financial year, how should that the recorded if they don’t pay me until 2019/20 tax year?
You essentially do not have to do any recording as you would have already raised the invoice in the 2018/19 tax year. If an invoice is unpaid, it reflects in the company Statement of Financial Position (previously known as the Balance Sheet) as a trade debtor until the payment is made.
Q23. How often should dividends be issued?
You can issue dividends as many times as you want, as long as there are available company profits. It’s illegal to issue dividends when there are no profits in the company. We’ve got a detailed article explaining dividends. Crunch make it simple to issue and record dividends, speak to your client managers if you have any questions.
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.