End of Tax Year Planning: A Guide for UK Company Directors

The 5th of April marks the end of the UK tax year and for company directors, it is a good time to review your salary, dividends and pension contributions. Here’s a guide to focus on maximising your allowances, understanding your income sources and starting your end of tax year planning.

Understanding Allowances:

Personal Allowance: 

• This is the amount of income you can earn tax-free each year, for the 2023/24 tax year, it’s £12,570. If unused the personal allowance cannot be carried over so ensure you utilise it.

• For high earners (those earning over £100,000), the personal allowance is gradually reduced by £1 for every £2 of income exceeding £100,000. This effectively means those earning £125,140 or more lose their entire personal allowance.

Dividend Allowance: 

• You still benefit from a dividend allowance of £1,000 in the 2023/24 tax year. This means you don’t pay any tax on the first £1,000 of dividends received. This is due to be reduced to £500 in the 24/25 tax year.

Pension allowance: 

• The annual allowance for 2023/24 is £60,000. This allowance covers all contributions; personal/employee contributions, employer contributions and tax relief. You will only pay tax if you go above your annual allowance.
• However, this is reduced for high earners by £1 for every £2 down to a minimum limit of £10,000 where adjusted income is above £260,000. This reduction also only applies where your threshold income is also over £200,000.
• Any annual allowance that hasn’t been used in the prior 3 tax years, provided you were registered pension scheme during those years, can be carried forward.

Related: How Do Limited Company Directors Get Paid

Understanding Salary and Dividends:

Salary: 

• As a director, if you receive a salary, it is subject to Income Tax. The Income Tax is tiered, with rates starting at 20% basic-rate for income above your personal allowance, 40% higher-rate for income between £50,271 – £125,140 and rising to 45% additional-rate for income exceeding this.

Dividends: 

• You can also receive income from your company through dividends. However, dividends are subject to separate dividend tax rates. Dividends above the dividend allowance are taxed at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.

Seeking Professional Advice:

Consulting a qualified accountant or financial advisor can be crucial for optimising tax planning. They can help you navigate the complexities of different allowances and thresholds and these relate to your specific situation.

By understanding these key points and seeking professional guidance, you can make informed decisions about your salary, dividends, and pension contributions and minimise your tax liability as a company director.

If you would like to discuss your individual situation further and establish if your end of year tax planning is efficient please contact us for a free consultation.