What is the most tax efficient remuneration strategy for directors of owner managed limited companies in the 2013/2014 tax year?
New Tax Rates
The 2013/2014 tax year starts on 6th April and with it come changes to tax and NI rate bands and limits. Directors who aim to extract profit from their company in the most tax-efficient way might need to tweak their salary to make the most of the new rates.The general idea is to set your salary at a level where no tax and NI is payable
NI Limits Increase
The NI thresholds for 2013/2014 will mean you won’t pay NI where your salary and bonuses for the year don’t exceed £7,755. But your company’s NI will start at £7,696, so from April 6th, the lower salary figure is optimum. ie £7,696 per year or £646.25 per month.
At the salary level suggested neither you nor your company will pay NI, but the good news is you will still receive a full years NI credit to your state pension records.
More Income Needed?
A salary of £7,696 per year isn’t going to pay the bills, so you’ll want to top this up with income which doesn’t count for NI purposes. Usually this means dividends, so you should pay regular dividends, say quarterly, at the most tax efficient level; this will depend on the tax free allowances and rate bands available to you.
Up and Down Tax Limits
For tax year 2013/14, the basic tax free allowances are set at £9,440, up from £8,105 for the 2012/2013 year. However, the bad news though, is the point at which higher rate tax will apply drops from £34,370 to £32,010.
It won’t take long to spot that the allowance increase is matched exactly by the fall in the basic rate tax band. As a result the most tax efficient combination of salary (£7,696) and dividends (including tax credit) (£34,779) for 2013/2014 remains unchanged from the current year at a total of £42,475.
Tips
Where you have other tax deductible allowances or reliefs, such as those given for personal pension contributions, you can increase the amount of dividends the company pays you and yet remains tax efficient.
All directors must register to complete a self assessment tax return regardless of whether any additional PAYE/NI is due to HMRC or not.
Trap
Dividends can only be paid from company profits and so the low salary, high dividend strategy can’t be used where the company does not have sufficient profits to distribute.
If you have any questions on this article and how it affects you and your business, please get in touch. Contact Julie on 07872 903849 or julie@jlaaccounting.co.uk or comment on the article below.
jla accounting limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by jla accounting limited.
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jla accounting and The Inspire Network in the news
Julie Allan to hold meetings for female bosses to make businesses thrive
6:00am Sunday 10th February 2013 in Business News 
By Steven Hugill
FEMALE entrepreneurs across the North-East have been given help to make their businesses thrive. Chartered accountant Julie Allan has started the Inspire Network, designed to give assistance to women in the region.
Ms Allan, a mother-of-three, has more than 15 years experience in accountancy, and holds monthly meetings.
She said: “The meetings are a great form of support and advice for women who run their own businesses or who are thinking of setting up on their own, and the feedback has been pleasing.
“They are very different from the traditional business networking events that women may find intimidating or off putting. “They are informal, free, and children are always welcome, with businesses of all sizes represented.”
The next meeting takes place on Thursday, March 14, in The Aston Hotel, in Newton Aycliffe, from 10am until noon.
http://www.thenorthernecho.co.uk/business/news/10217215.Help_at_hand_for_women_entrepreneurs/
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Payroll and RTI (Real Time Information)
You may have heard that HMRC are introducing changes to the way that PAYE information is reported to them. The introduction of RTI is the biggest change to the payroll and PAYE system since the start of PAYE 67 years ago.
By using RTI employers pass detailed employee information to HMRC about deductions of tax, NI and students loans before each employee payment is made rather than once a year at payroll year end. This will ensure that HMRC has up to date and accurate information on employment income and tax deductions for all PAYE tax payers.
Although the scheme will dramatically change the PAYE system some elements will remain:
- tax codes will still be used
- P60, P45s and P11Ds will still be produced
- PAYE and NI will still be due on 19th/22nd of each month (depending upon the payment method used)
Are you ready for RTI?
Have you received your letter from HMRC with your boarding date? Are you using RTI ready software? Have you ensured that your employee data is up to date and accurate? Make sure you address these items now rather than waiting until the last minute.
Are you thinking of outsourcing your payroll?
jla accounting provides a cost effective, rti compliant, payroll solution with prices from:
Weekly
£2 per week per employee
Monthly
£5 per month for the first employee/director, £3 per month per employee for each additional employee
If you would like to know more, please get in touch, call Julie on 01325 490456 or 07872 903849 or email julie@jlaaccounting.co.uk.
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HMRC to target outstanding VAT returns and payments
HMRC have announced that from 9 January 2013 they are embarking on a new campaign to chase up businesses that have one or more VAT returns outstanding. Their announcement reminds businesses that failure to submit a VAT return is an offence and penalties could be levied on top of any additional VAT that might be due to HMRC.
They have also stated that detailed information about how they plan to approach this campaign is not going to be released until the date the campaign is launched!
What to do?
The obvious answer is to get your outstanding VAT return(s) completed and submitted online as soon as possible and, preferably, before 9 January 2013 to avoid getting caught up in this campaign.
What if you cannot pay?
Complete and submityour return anyway and, where possible, make whatever payment they can with the return.
Contact HMRC on 0845 302 1435 (Business Payment Support Service) or 0845 010 9000 (General Advice Line) to explain that the return has been submitted (with part payment where appropriate) and ask about the possibility of negotiating a Time To Pay (TTP) arrangement.
Explain the circumstances why you are unable to make full payment and what steps they have taken to find funding to meet the debt. They will also be expected to make a proposal of the timescale over which they will meet the full liability taking into account that any TTP arrangement will only be entertained on the condition that future returns are submitted and paid in full by the due date.
HMRC’s agreement to a TTP arrangement is by no means guaranteed so they will need to be prepared to put forward a justifiable case for further deferral of payments.
Failure to submit a return or pay in full by the due date can result in a Default Surcharge ranging from 2% to 15% of the unpaid tax. However, worryingly in certain circumstances, HMRC might look to impose Civil Evasion Penalties.
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HMRC Penalty Regime for Self Assessment
The new self assessment penalty regime is in place for self assessment tax returns for the 10/11 tax year onwards. The new regime sees an increase in the level of penalties and penalties will be enforced even if you owe no tax.
The penalties build up as follows (Even if you have no tax to pay or you have paid the tax you owe.):
- One day late – Fixed penalty of £100.
- Up to three months late – A plus £10 for each subsequent day the return is late, up to a maximum of 90 days/£900.
- Six months late – A plus B plus £300 or 5% of the tax due whichever is greater.
- Twelve months late – A plus B plus C plus £300 or 5% of the tax due whichever is greater. In serious cases the penalty may be up to 100% of the tax due.
Example
Ms K Perry’s tax return is due on 31 January 2013 but HMRC does not receive it until 5 August 2013. It is six months late so the following penalties are due:
- £100 fixed penalty
- £900 penalty (£10 from 1 May to 29 July when the maximum 90 day limit is reached)
- £300 or 5% of the tax due – whichever is higher.
This gives a minimum penalty of £1,300.
Deadline
The deadline for your self assessment tax return for the year ended 5 April 2012 is:
- Paper submission – 31 October 2012
- Online submission – 31 January 2013
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Christmas Gifts – The Tax Implications
December may be the time for treating your employees and clients but ensure you understand the tax implications before you do.
Gifts to clients and customers
You can give a sample, or something that it part of your trade or something that advertises your business (e.g. has your logo on it) provided it is not food, drink or tobacco and it will be tax deductible. This also applies to other gifts as long as they do not exceed £50 in total.
Gifts to employees
Gifts to employees are always tax deductible to the employer but may be treated as a taxable benefit to the employee.
A trivial gift, such as a bottle of wine, a box of chocolates or a turkey will not incur any tax on the employee. A larger gift, such as a Christmas hamper, a case of wine or vouchers will.
Christmas Party
Entertaining for employees is an allowable expense for the business and you can reclaim imput VAT on the costs.
For an event for employees so long as the total cost (including VAT, food, drink, travel and accommodation) is less than £150 this will not be classed as a taxable benefit for your employees. The event must be open to all staff and other staff events (including this one) throughout the year must have totalled less than £150 a head.
Most important of all, enjoy it!
Wishing you all the best for the festive season from jla accounting!
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The Inspire Network
Julie has become a member of the administration team of The Inspire Network and will be running meetings in the Darlington area from September 2012.
The Inspire Network is a network of North East women entreprenuers running great businesses in all shapes, sizes and forms, from the smallest kitchen table and beyond! No business is too small or too big to be part of the network, it is the depth of different businesses and opinions that makes the network great!
The network inspires and supports each other via its social media links and at its networking meetings across North East England. We share ideas, ask questions, and share information on what is happening in the business world in the North East and beyond.
The Inspire Network is dedicated to helping North East women entrepreneurs grow phenomenal businesses, build relationships and build income for their families.
The network supports family run businesses and busy working women, all meetings are planned with this in mind and are child friendly (where possible) and arranged to fit around school hours.
The launch event for the Darlington meetings is at The Aston Hotel on Thursday 6th September from 10am to 12 noon. For further details and to register see http://theinspirenetworkdarlington.eventbrite.com/
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Cloud accounting – is it the way forward?
You may be thinking about starting to use an accounting package instead of Excel or a manual cashbook or you may be thinking about changing accounting package. Should you consider a cloud accounting package?
What does a cloud accounting package mean? We are all used to using some ‘cloud’ services, such as hotmail, twitter, facebook. All of these services are hosted in a ‘cloud’ rather than on your laptop/computer/server. Traditionally accounting packages have been hosted and maintained in-house but the trend is beginning to slowly move towards ‘cloud’ accounting packages and all of their advantages.
Advantages
Disadvantages
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What is the most tax efficient remuneration strategy for directors of owner managed limited companies in the 2012/2013 tax year?
New Tax Rates
The 2012/13 tax year starts on 6th April and with it come changes to tax and NI rate bands and limits. Directors who aim to extract profit from their company in the most tax-efficient way might need to tweak their salary to make the most of the new rates.The general idea is to set your salary at a level where no tax and NI is payable. However, because the NI thresholds are lower than the tax free allowances, concentrate on pitching your salary below these limits.
NI Limits Increase
The NI thresholds for 2012/13 will mean you won’t pay NI where your salary and bonuses for the year don’t exceed £7,590. But your company’s NI will start at £7,485, so from April 6th, the lower salary figure that’ is optimum. ie £7,485 per year or £623.75 per month.
At the salary level suggested neither you nor your company will pay NI, but the good news is you will still receive a full years NI credit to your state pension records.
More Income Needed?
A salary of £7,485 per year isn’t going to pay the bills, so you’ll want to top this up with income which doesn’t count for NI purposes. Usually this means dividends, so you should pay regular dividends, say quarterly, at the most tax efficient level; this will depend on the tax free allowances and rate bands available to you.
Up and Down Tax Limits
For tax year 2012/13, the basic tax free allowances are set at £8,105, up from £7,475 for the current year. However, the bad news though, is the point at which higher rate tax will apply drops from £35,000 to £34,370.
No Change. It won’t take long to spot that the allowance increase is matched exactly by the fall in the basic rate tax band. As a result the most tax efficient combination of salary (£7,485) and dividends (£34,990) for 2012/13 remains unchanged from the current year at £42,475.
Tips
Where you have other tax deductible allowances or reliefs, such as those given for personal pension contributions, you can increase the amount of dividends the company pays you and yet remains tax efficient.
All directors must register to complete a self assessment tax return regardless of whether any additional PAYE/NI is due to HMRC or not.
Trap
Dividends can only be paid from company profits and so the low salary, high dividend strategy can’t be used where the company does not have sufficient profits to distribute.
If you have any questions on this article and how it affects you and your business, please get in touch. Contact Julie on 07872 903849 or julie@jlaaccounting.co.uk or comment on the article below.
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NIC holiday for start up companies
The Regional Employer National Insurance Contributions (“NIC”) Holiday offer reduction in Employer NICs for new businesses in services, manufacturing and other key industries who meet certain criteria and in certain geographical locations.
Businesses in the North East who fit the right criteria are eligible for this scheme.
Under the scheme, eligible businesses can take a 12 month NIC holiday for each of the first 10 employees hired in the first year of business, up to £5,000 per staff member. This gives a potential saving of £50,000.
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