Personal Tax Planning Best Practice
Accountants and Tax Advisors for Entrepreneurs
The last week of July is the point at which many individuals under self-assessment must make their second payment on account for taxes for the 2020/21 tax year. It therefore feels like an appropriate time to reinforce some personal tax planning best practices provided by our personal tax advisor in London, which we’re going to do see in this week’s newsletter!
The common perception is that tax planning involves complicated arrangements, but effective tax planning is available to everyone, and the Government regularly introduces new legislation and allowances which influences this.
Understanding these and how they might apply to your circumstances allows you to ensure you pay the right amount of tax, minimise your tax bill and comply with current rules.
With the second payment on account due by 31 July, this is a good time of year to ensure that you are on top of your personal tax situation for the 2020/21 tax year. Albeit well ahead of the filing and payment deadline of 31 January 2022, it is always best to be aware of liabilities well in advance of this date so you can seek to ensure you are optimising your tax efficiency through sensible use of salaries, dividends, pension contributions and directors loan accounts.
As a reminder of some of the basics:
Depending on the operations of the business, it is usually advantageous from a tax perspective as a director to pay yourself a combination of salary and dividends
If you draw a salary from the company, it will be treated as normal income, and the usual 20%, 40% and 45% rates will apply once your personal allowance is utilised
Dividends do not attract national insurance payments, but companies do not get corporation tax relief on them
All directors are entitled to a dividend allowance, which is currently £2,000 each year. Any dividend more than that amount will be taxable at 7.5%, 32.5% and 38.1% dependant on the amount paid
Directors loan balances can be used to improve tax efficiency; however, you should be cautious with having an overdrawn director’s loan account for a long period of time, or where they exceed £10,000, because HMRC treat this as a benefit in kind, which has tax and national insurance implications
Finally, if you believe your personal income for the year, which will include Directors' Fees, dividends and other income, will take you over a tax rate threshold, resulting in a higher rate of Personal Tax, you can reduce or eliminate this liability through pension contributions, which attract tax relief
If you would like to discuss your personal tax situation and improve your planning, please get in touch with our personal tax advisors at Dragon Argent, though the contacts details below or schedule a call with us by clicking link below:
Book a call with our Accountant today ↓
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