Best Tax Efficient Way To Stay Under The Higher Tax Band In 2016/2017

[boxingbantz]

Am I right in thinking this is the most tax efficient way to stay under the higher tax bracket (£43,000) in 2016/2017?

£8,060 salary
£5,000 dividend allowance (essentially £5k tax free)
£2,940 available to declared or be used against a dividend (as it's still within my personal allowance of £11,000)
£27,000 to declare as a dividend taxed at a rate of 7.5%

So, in short, I'd take a salary of £8,060, dividends declared would be £34,940 with a tax bill of £2,025 to come at the end of the year (which would mean I'd 'take home' just shy of £32,915 total dividends due to the tax - is this correct?)

Any advice or clarification would be greatly appreciated!

[northernladuk]

Plenty of examples of what the most efficient set upnis from accountants on the web. Your accountant should be able to advise as well.

For example.... A nice clear one with options..

http://jf-financial.co.uk/2016/02/10...levels-201617/

[WordIsBond]

Are you a one man band, only one director? If not, you can claim employment allowance, which changes the answer.

Do you have any other income? If so, it cuts into your personal allowance and changes the answer.

Are you spending any money personally that could be company-paid as a benefit in kind, reducing your corporation tax, while still staying within the £11K allowance? If so, this could change the answer.

And the most purely tax efficient salary is probably £8112, rather than £8060, because while you have to pay employee's NI on the extra £52 at 12%, you save corporation tax at 20% on the same amount. But it probably isn't worth the hassle of having to actually pay the NI for the small amount you save.

[boxingbantz]

Thank you.

I am a one man band and was looking for the most tax efficient way with no other income etc.

The example in the link posted by northernlad confirms it, I think.

[northernladuk]

But make sure you speak to your accountant and make sure you both agree and if if not why not.

[psychocandy]

Nixon Williams are advising £8060 for next year. I guess its considered too risky to try and fiddle things to get the allowance.

[The Spartan]

Nixon Williams are advising £8060 for next year. I guess its considered too risky to try and fiddle things to get the allowance.

Too risky in what sense? No one is suggesting you fiddle it, it's more that if you're eligible for the allowance it's more tax efficient.

[WordIsBond]

Yeah, what's the fiddle? Either you can use it because you aren't a one-director company, or you can't.

The article linked above was pretty good, but didn't make much sense on that point. If the rules as written don't exclude a company with husband and wife directors, they don't exclude that company, and such companies can and should claim EA. If they change the rules before the tax year starts to exclude those companies, those companies shouldn't claim it. If they don't change the rules but do change them for the following year, those companies should claim it for 16-17 and not for the following year.

There's no risk and no fiddle. Just follow the rules, and if rules change then follow the new rules. They aren't going to try to nail you retroactively for a couple hundred quid. They might for a lot more than that if they think they've got a chance, but not for this.

People may fiddle JSA, but you don't fiddle this one. Either you do or you don't have two directors, or other employees.

And it would be stupid to do it just for the EA. There are many good reasons to add a spouse as a shareholder / director. Employment Allowance is way down the list.

[TheFaQQer]

Yeah, what's the fiddle? Either you can use it because you aren't a one-director company, or you can't.

The article linked above was pretty good, but didn't make much sense on that point. If the rules as written don't exclude a company with husband and wife directors, they don't exclude that company, and such companies can and should claim EA. If they change the rules before the tax year starts to exclude those companies, those companies shouldn't claim it. If they don't change the rules but do change them for the following year, those companies should claim it for 16-17 and not for the following year.

There's no risk and no fiddle. Just follow the rules, and if rules change then follow the new rules. They aren't going to try to nail you retroactively for a couple hundred quid. They might for a lot more than that if they think they've got a chance, but not for this.

People may fiddle JSA, but you don't fiddle this one. Either you do or you don't have two directors, or other employees.

And it would be stupid to do it just for the EA. There are many good reasons to add a spouse as a shareholder / director. Employment Allowance is way down the list.

I agree - my wife has been a director of the company from day one, so it's not like I've just added her suddenly for this. I'll wait for InTouch to advise on what salary to pay, coupled with the complication of being inside IR35 for some of my income as well.

[northernladuk]

Yeah, what's the fiddle? Either you can use it because you aren't a one-director company, or you can't.

It's just PC's highly 'professional' terminology. I'm surprised he didn't call someone a knobhead at the same time.