We’re fast approaching the end of the tax year on 5th April, now is a good time to get updated with tax changes and ensure you’re ready for the challenges ahead.
This tax year officially ends on the 5th April 2024 with the 6th April 2024 being the first date in the 2024/25 tax year.
Dividend tax free allowance: Every shareholder has access to a tax-free dividend allowance, if this is not taken it cannot be carried forward into the following year. The dividend allowance has been reduced to £1000 for the 2023/24 tax year. This means you will be able to receive dividends up to £1000 without being liable for tax regardless of how many other types of income you earn from alternative sources such as salary, rental income, and bank interest.
As this is additional to the Personal Allowance, each shareholder can receive £13,570 without paying any income tax. It is important to note that the Dividend Allowance will be reduced from £1000 in the current tax year, to £500 in 2024/25.
Utilise the full basic rate tax band: It is important that you are utilising the basic rate tax band in full for both husband and wife, it is an extremely tax-efficient way of drawing money out of your company. With a basic dividend rate of 8.75%, a couple can earn a combined gross income of £102,540 and pay just over £6500 tax. However, this is presuming that both husband and wife are shareholders and have sufficient reserves in the company to pay dividends up to the basic rate band for each shareholder.
Pension contributions: Personal pension contributions can be offset against income, in order to reduce any higher rate tax. Every individual has access to a pension contributions allowance of up to £60,000 per tax year. Once an individual has made contributions to a registered pension scheme, you can carry forward the annual pension allowance into future tax years, up to 4 years in total. For example, a couple who both have full carry-forward allowances can make pension contributions of up to £480,000 which can then be offset against their taxable income.
It is very important that you seek professional advice before making pension contributions, to ensure that this is dealt with correctly and in the most tax effective manner. Please feel free to contact one of our team via email@example.com or call 02476673160 if you would like to discuss this further and see how you could benefit from making pension contributions.
Please note: This article is provided for information only and was correct as at time of writing (24/11/22). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.