Its a new tax year, small business owners will be deciding how extract their income, lets look at the choices.
Business Expenses
If you personally incur costs for you business, make sure you reclaim them, for example
Business Mileage (keep records of your trips)
Working from Home Costs
Business Travel Costs
If you incur any cost wholly and exclusively for your business you can reclaim it and it tax free to you and tax deductible to the company.
Pensions
Pensions are extremely tax efficient, contributions are normally tax deductible for the company (they can by up to £40k per year), the money grows in the pension tax free and when you reach 55 your can tax up to 25% out tax free.
Electric Company Cars
There are a range of incentives including the Government Plug In Allowance of up to £2,500, very low rates of Benefit in Kind and 100% First Year Capital Allowances.
Interest on Loans
If you have lent money to your company and you borrowed that money and pay interest on it you can claim the interest on your self assessment return for qualifying interest relief.
You company can also pay you interest on the loan but it will need to deduct interest at source at 20% under the CT61 rules.
You can reclaim tax paid on your interest if it was below your allowance. You must reclaim your tax within 4 years of the end of the relevant tax year. Further details at Tax on savings interest – GOV.UK (www.gov.uk)
Salary Options
The tax free allowance is £12,570 (£1,047.50 per month) but National Insurance is the main driver for salary levels
| Class 1 National Insurance thresholds | 2021 to 2022 |
|---|---|
| Lower earnings limit | £120 per week £520 per month £6,240 per year |
| Primary threshold | £184 per week £797 per month £9,568 per year |
| Secondary threshold | £170 per week £737 per month £8,840 per year |
Most business owning directors who can take dividends will choose either £737 per month or £797 per month, the £797 qualifies you for state pension, you can check your qualifying years with HMRC
There are special rules for applying National Insurance to Directors
Furlough
If you are on Furlough (CJRS) you should leave you pay at it previous level and then review it when you return to work.
National Minimum Wage
The national minimum wage does not apply to company directors unless they have contracts that make them workers as defined in section 54(3) of the act.
Dividends and the Dividend Allowance
Dividends are a great choice provided you company has made a profit or has profit reserves (if doesn’t its illegal to pay dividends)
| Tax year | Dividend allowance |
|---|---|
| 6 April 2021 to 5 April 2022 | £2,000 |
| 6 April 2020 to 5 April 2021 | £2,000 |
| Tax band | Tax rate on dividends over the allowance |
|---|---|
| Basic rate | 7.5% |
| Higher rate | 32.5% |
| Additional rate | 38.1% |
