It’s Tuesday!
Let’s talk Tax.
Read this week’s short Tax snippet for doctors & dentists, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – take 5 minutes with your coffee to have a read.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it.
The Financial Conduct Authority does not regulate tax advice.
The £5,000 tax-free dividend allowance
From April 2016, the tax-credit system on dividends was scrapped and replaced with a simple £5,000 per person, per year, tax-free allowance on dividend income.
After this dividends are taxed at 7.5% (basic), 32.5% (higher) and 38.1% (top).
This new dividend tax method does leave small limited companies a little worse off, when it comes to their personal tax.
Which is why it is even more important to maximise other areas of personal tax and dividend tax planning.
If your spouse doesn’t have dividends
One way to do this, is that if your spouse, or civil partner, doesn’t have dividend income, then there is the option to make them a shareholder of your limited company.
This means they are entitled to receive a dividend payment, relevant to the number of shares they hold.
It also means an additional £5k income into your household, tax-free.
To be a shareholder they will need to undertake some work for the company, such as bookkeeping, answering the phone, calling suppliers, organising bank statements, going to the post office, administration or business management.
This demonstrates that they have an active involvement with your limited company.
Get the set-up right
There is a form to file with Companies House, and you need to get the allocation of shares correct, so it is best to seek the help of a specialist accountant.
If your spouse, or civil partner, doesn’t have any income at all, or is paying basic rate tax and you are paying higher rate, there may be further tax planning that can be suggested by an accountant.