Before 5 April 2018

Tablet-friendly – There are two things for directors to know before the end of the income tax year, which is on 5 April 2018. These relate to payroll and dividends where the company is small and the directors are also the owners of the company.

The tax system regards directors as employees of the company, and they can receive a salary. Each salary payment needs to be reported via the real-time information system. If this is not being done, and the directors have no income from elsewhere, then personal allowance might be wasted. This could leave each director poorer to the extent of £1,633. Any accountant can set up a payroll scheme to remedy this, but please act in good time. That’s why we are telling you this starting three months in advance.

The directors may vote themselves a tax-free dividend of £5,000 before 5th April, assuming that they have no other dividend income. If they don’t do this, then it will cost each director at least £375 in wasted opportunity. Any good accountant can help here. We will just knock out the paperwork on our re-usable spreadsheet system which makes it easy.

So make sure you have clear ideas about using your personal allowance and £5,000 tax-free dividend, whatever you actually do. After deducting our fees, this can leave you about £1,930 better off, and it is indeed a case of “use it or lose it”. With any dividend which you vote for yourself, you don’t need to take it out at once as physical cash, but instead, you can leave it as a credit on your director’s current account with the company so you get the tax benefit now, but you leave the cash for future years. You could in fact vote yourself a much larger dividend now, take the hit on 7.5% dividend tax, and then withdraw the cash in the next few years. One obvious example of when this might be appropriate is if you have children at school or university. Discuss this with your accountant.

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