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  • Tax Breaks for Directors - Part 2  Director shareholders - 14. Tax-efficient salaries - 14.3. National minimum or living wage
    14.3. National minimum or living wageMight such a modest salary fall foul of the requirement to pay the national minimum wage (NMW) or the living wage (NLW)?Note. Since 1 April 2016 the NMW rules apply only to those aged 24 or less. The NLW rules applies instead to those 25 and over.ExampleThe adult NLW rate since April 2019 is £8.21 per hour which, assuming a 40-hour week for 52 weeks per year, yields a salary for the whole of 2019/20 of £17.077. Therefore, where the NLW applies a salary of £8,632...
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  • Tax Breaks for Directors - Part 1  Directors only - 2. The higher tax rate regime - 2.2. How to maximise tax efficiency on income? - 2.2.2. Salary sacrifices (optional remuneration arrangements)
    2.2.2. Salary sacrifices (optional remuneration arrangements)Salary sacrifice involves exchanging part of your salary for a benefit in kind, preferably one which is tax free (HMRC calls these optional remuneration arrangements (OpRAs)). The effect is that you can receive the same value, but with less tax and NI to pay. Since 6 April 2017 new salary sacrifice schemes are only available for a very limited range of benefits. The most of these are: pension contributionspensions advicechildcare cycle-to-work bikes...
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  • Tax Breaks for Directors - Part 1  Directors only - 3. Your salary - 3.2. Directors’ salary and the NMW and NLW
    3.2. Directors’ salary and the NMW and NLWIn principle, directors can take as much salary as they want. There’s no official cap, however there is the NMW or NLW to consider. In April 2016 the NLW replaced the NMW for employees aged 25 and over. These rules apply to directors where, for purposes of the NMW and NLW legislation, they are treated as an employed worker, but not if the only duties you perform are those of a company director or company secretary. Tax break The Department for Business, Energy...
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  • Tax Breaks for Directors - Part 1  Directors only - 12. Pension contributions - 12.1. Introduction
    12.1. IntroductionPension funds have always enjoyed many tax advantages, including the ability to receive investment income and capital growth in a tax-free environment. However, a new regime for private pension provision started on 6 April 2006, commonly referred to as “A Day”. In broad terms, from A Day beneficial tax treatment is given provided your overall amount invested within a pension fund remains within two separate allowances: (1) the annual contribution limit; and (2) the lifetime allowance....
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  • Tax Breaks for Directors - Part 2  Director shareholders - 13. Dividends - 13.2. The tax break dividend
    13.2. The tax break dividendTax breakThere’s no personal tax to pay on dividends you receive where your total taxable income (including the dividend plus tax credit) does not exceed the total of your tax-free allowances (£12,500 for 2019/20) and the basic rate tax band (£37,500 for 2019/20).2019/20£Personal allowance£12,500Add: basic rate band£37,500Total£50,000The first £5,000 of dividends is taxed at 0%. Whatever amount of the 0% band you use will reduce the amount of basic or higher rate band available...
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  • Tax Breaks for Directors - Part 2  Director shareholders - 17. Other NI breaks - 17.2. Current NI rates
    17.2. Current NI ratesHigh earners are dealt a double blow as they pay 12% on earnings above the primary threshold of £8,632 (this is also the figure for the secondary threshold for employers’ contributions), up to £47,500 for 2019/20 and 2% on all earnings above this. Your company, as an employer, will be hit even harder. It must pay 13.8% of its workers’ salaries as NI. Per £1,000 of earningsCost at 2019/20 ratesEmployees’ NI 12% on earnings between the primary and upper limit£120Employees’...
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  • Tax Breaks for Directors - Part 1  Directors only - 1. Compensation for being a director - 1.2. What form of compensation?
    1.2. What form of compensation?While ultimately subject to veto by the shareholders, it is the board of directors that determines the amount of directors’ compensation, usually referred to as remuneration, for their duties and responsibilities. Typically, this will start with a basic salary and a right to pay linked to the company’s performance. And where you are a shareholder you can expect to receive dividends to increase your income when your company makes a profit.In addition to salary your company...
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  • Tax Breaks for Directors - Part 1  Directors only - 4. Directors’ bonuses - 4.2. What to put on your tax return?
    4.2. What to put on your tax return?A bonus counts as income from employment and for all tax and NI purposes is treated precisely the same as salary and subjected to PAYE tax and NI. It will therefore be included in the figure of earnings which appears on your end of year pay and tax certificate, Form P60. To complete your tax return (tick the box for director) copy the figures of pay and tax deducted from the P60 in the appropriate boxes on the Employment pages of your tax return. You do not have to copy...
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  • Tax Breaks for Directors - Part 1  Directors only - 5. Company cars - 5.1. Introduction
    5.1. IntroductionA company car is still the most popular perk. The taxable amount for company cars covers all costs associated with the provision of the car such as insurance, road tax, repairs, and maintenance payments, but it is not reduced if the director meets any of the expenses personally unless it is agreed with the employer as part of a general contribution towards costs.Tax breakTax on company cars is payable according to a scale charge set by the government, which in turn depends on the car’s CO2...
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  • Tax Breaks for Directors - Part 1  Directors only - 6. Using company assets - 6.1. Introduction
    6.1. IntroductionWhere an asset, e.g. an item of equipment, is sold to a director for less than its market value, i.e. the amount that the company could expect to sell it for to an unconnected third party, the difference is taxable and liable to employers’ NI as a benefit in kind (BiK). A BiK also arises where a company makes an asset available to a director for personal use. Broadly, the basic tax charge is equal to 20% of the value of the asset or if greater, the cost of providing the asset. For example,...
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