New tax rules which start in 2016/17 could result in a lot more tax for owner managed companies. Therefore, it is very important to look at ways of trying to minimize the tax impact of the new rules and here are some of the areas you may wish to review:

Salary

Paying a salary just below the NIC primary (approximately £8,000) threshold will preserve entitlement to the state pension, and incur no employee or employer’s NIC. Providing the director has no other earnings then no income tax should be due and the company will save 20% corporation tax on the salary.

Dividends

The first £5,000 of dividends will be tax free.

However, any amounts over £5,000 will result in an increased tax charge of 7.5% compared to the previous tax year 2015/16.

Tax Planning

It is worth considering reducing the amount of dividends you take out of the company. For example, if a husband and wife company reduced their yearly dividends by £10,000 each then they could save £1,500 tax each year

If the company, then paid £20,000 into a company pension scheme they should be able to save 20% corporation tax i.e. £4,000.

If the directors were of a certain age or approaching 55 in the near future they could then extract a tax free lump sum from the company pension subject to meeting all the requirements

The ideal combination of these factors will vary for each owner managed company director and I would be more than happy to discuss this with you. Please do not hesitate to contact me If you wish to discuss the above by sending an email to kevin@kwaccounting.com .I very much look forward to hearing from you.