Dividends vs. Salary

Company Directors often pay themselves a small salary and obtain the remainder of their income from dividends, based on the company’s profits.  This helps to keep personal tax liability to a minimum whilst ensuring that National Insurance contributions are made.

In previous years, dividends were tax-exempt; however, George  Osborne’s tax reforms introduced  a new tax on dividends which came into force in 2016 and further changes to the tax-free dividend allowance may lead some companies to change their remuneration strategy sooner rather than later.

Currently the dividend allowance means that an individual’s first £5,000 of dividends are tax free.  When added to the increased personal allowance of £11,500 this gives a combined tax-free income of £16,500 for those whose only income is from dividends in 2017-18.

Above the £5,000 allowance, dividends will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).

Be warned: from April 2018 the tax-free dividend allowance will drop from £5,000 to £2,000.

Tax code allowance changes

For 2017 to 2018 the basic Personal Allowance will be £11,500 and the basic rate limit will be £33,500. For Scottish taxpayers the basic rate limit will be £31,500.

The new threshold (starting point) for PAYE is £221 per week (£958 per month).

The new emergency code is 1150L for all employees.

Income Tax rates and bandwidths are:

UK Rate%Bandwidth
Basic Rate20%£1 to £33,500
Higher Rate40%£33,501 to £150,000
Additional Rate45%£150,001 and above
Scottish Rate%Bandwidth
Basic Rate20%£1 to £31,500
Higher Rate40%£31,501 to £150,000
Additional Rate45%£150,001 and above

Information is taken from www.gov.uk

National Minimum and Living Wage Increases

Contracts for payments below the minimum wage are not legally binding. The worker is still entitled to the National Minimum Wage or National Living Wage.

Current rates

Year25 +21 – 2418 – 20Under 18Apprentice
April 2017£7.50£7.05£5.60£4.05£3.50

These rates are for the National Living Wage and the National Minimum Wage. The rates change every April.

Information is taken from www.gov.uk

New £1 Coins

The original £1 coin entered circulation in 1983 and has become notoriously easy to counterfeit; it is estimated that one in every thirty of these old-style pound coins is fake. The new bi-metallic £1 coin entered circulation on 28th March 2017.  It features a number of anti-counterfeit elements, including a 12-side design, a hologram type image, micro-lettering and milled edges.

The old coins will cease to be legal tender from 15th October 2017.