Ever had a tax or accounting question that you’ve always wanted to ask an accountant, but didn’t want to pay the associated hourly fee that comes with it? Well now you can! Simply ask us your question here, and our team of expert Personal Accountants will respond – it’s that simple! No associated fees, dodgy advice or questionable answers from unskilled account managers, just an honest, clear and precise response from our team of experts – that’s The Intouch Promise.
Take a look below at the questions we’ve already been asked.
Is my Directors Loan Account balance correct? What is included in that balance?
The balance on the Director’s Loan Account will be correct if you have maintained the Intouch portal accurately. The balance on this account reflects the balance of transactions between yourself and the company.
Director’s Loan Account is the name that we give to the nominal code where we record all transactions that are processed between you and your company. We record all salary processed, expenses and mileage claimed and dividends declared as amounts owed to you through your Director’s Loan Account.
Any payments that you make to yourself are also recorded through the Director’s Loan Account and reduce the amount owed to you.
How often can I pay dividends?
As the director of your Limited Company it is up to you to decide how frequently and at what rate the company declares dividends.
Every contractor will take a slightly different approach, and your approach will be individual. It may be that your dividend income needs to form part of your monthly budgeting, or it may be that you are comfortable taking dividends on a less frequent basis.
More importantly, you should only declare dividends where the company has profits to do so, and the Intouch portal dashboard contains advice around the maximum dividend payable. This information is based on the retained profit in the company, as at the end of the most recently closed month. If you are using the Intouch portal dashboard as a basis for making dividend payments, then it is imperative that the portal is up to date to avoid you declaring dividends in error.
What is the most tax efficient salary?
The most tax efficient salary depends on your circumstances i.e. if you are a one man band Limited Company, then the optimal salary would be up to the secondary NI threshold, which for 2017/18 is £8,164 per annum. This would mean that no NI or income tax is payable on the salary level, and the left over personal allowance amount can be used for tax free dividends or other income from property, pension etc.
If there were two employees including yourself then you can take advantage of the employers NI allowance of £3,000. This would then make a salary level of up to the personal allowance more tax efficient, because the amount above the secondary NI threshold would be taxed at 12% (employees NI), and the employers NI at 13.8%, would be offset by the annual allowance, so only an additional tax to pay of 12% over the £8,164.
The company make a saving of 19% from the increase in salary, and save on corporation tax, therefore making this more tax advantageous. We at Intouch would look at your individual circumstances and establish what level of salary would work best for you.
What will my personal tax liability be?
Your personal tax liability will depend on the income that you have received during the year. This may have come from a range of sources including; salary from your PSC, salary from other sources if you’ve been employed elsewhwere, dividend income from either your PSC or other sources, income from investments, rental properties and any other income that you might have.
The 2017/18 personal allowance (the amount that you can earn before incurring income tax) is £11,500. This plus the next £33,500 of income forms the basic rate band. You can have income of up to £45,000 then without any of that income being taxed at the higher rates. Once your income exceeds this threshold then any marginal income is taxable at the higher rates.
We have more tax and accounting Q&As that we will be posting next week, so keep an eye on our social channels for a chance to see if your question has been answered. If not, feel free to ask away! We will then post the answers here in our blog.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.