Dividend Allowance – Green & Co Accountants and Tax Advisors

tax efficiency and the DLA.jpg

The various tax allowances available to individuals in 2017/18 mean that it is possible for directors with a substantial credit on their director’s loan account to extract up to £22,500 out of the company and incur no personal tax. This table illustrates how it works:

	2017/18
Personal allowance: this is the amount of income an individual can earn in a tax year before paying tax.	£11,500
Personal savings allowance: a basic rate taxpayer can receive interest of up to £1,000 on which they pay 0% tax. This is in addition to the ISA allowances.	£1,000
Starting rate for savings: if an individual’s other income (excluding interest and dividends) is below £16,500 then they will also qualify for the starting rate for savings. The maximum available starting rate is £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.	£5,000
Dividend allowance: individuals won’t pay tax on the first £5,000 of dividends they receive in the tax year.	£5,000
TOTAL	£22,500

This shows the benefit of savings income as a component of an owner manager’s remuneration from the company.

It is important that interest is charged at a commercial rate; for example, if the company has a loan from the director of £60,000 and the commercial rate of interest is 10% then £6,000 interest would be payable to the director. Any amount of interest which HMRC considers to be in excess of a commercial rate may be treated as either salary or a dividend.

Although banks and building societies no longer have to deduct interest from investors, companies currently still have to. If the company makes payments of interest to a director, basic rate tax (20%) must be deducted and paid to HMRC. A corresponding return, known as a CT61, must also be submitted.

Please note that your personal circumstances should be considered with your tax advisor before implementing this remuneration.

If you would like to discuss this further please do not hesitate to contact our tax department.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

The main changes include:

The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Tag: Dividend Allowance

Tax Efficiency and the Directors Loan Account

Share this:

Like this:

Share this:

Like this: