** This blog post was updated on December 3rd 2019 **
As the end of the current financial tax year is fast approaching, it’s a good idea to think about whether you have fully maximised the amount you can withdraw from the company tax free and at the basic rate of dividend tax.
If you are a Scottish tax-payer, please note that your tax rates and allowances are different to the rest of the UK.
Assuming your company makes sufficient profits, the total tax free amount you can withdraw, not including other sources of income and using our recommended low wage/higher dividend split, is £13,850 per financial tax year. You can take a further £32,500 of dividends, at the 7.5% dividend tax rate and before the higher rate of 32.5% is charged. This would generally breakdown as £8,4,24 salary for the year (£702 per month) and dividends of £37,926.
Please Note: Final dividends MUST be paid prior to the 5th April 2020 or they will not be included in the current financial years calculations and you may lose certain allowances.
In most scenario’s it makes sense to withdraw as much money from the company at the lower tax rates, rather than let any reserves build up for a future year as your circumstances can easily change, as can the tax rates.
There are, as always, certain things that will reduce, or restrict, this tax free allowance of £13,850 and the additional basic rate dividends of £32,500.
1. You only started working through your company after 6th April 2018 and have earned wages from a previous job or have another employment.
2. You have other sources of income such as rental property, interest, dividends from shares, benefit in kind or any other taxable income.
3. Your company does not have sufficient profits available.
Any of the above will restrict the amount you can take out as dividends before being taxed. If you have received any of the above income, or unsure of what you can take, please get in touch with us well in advance of the year end (5th April 2020) and we’ll be happy to help.