An entrepreneur’s guide to tax rates, thresholds and allowances for 2019/20
From the 6th April 2019 the tax rates, thresholds and allowances are changing. It is worth spending some time on tax-planning as it is totally legal to choose the most tax efficient way for you to be taxed.
Income tax rates and thresholds
Your personal allowance (the amount of tax-free income) has gone up to £12,500 from £11,850 in 2018/19. For those of you in employment, HMRC may set a tax code to reduce your personal allowance if there is an outstanding tax bill from the previous year for example.
The income limit for Personal Allowance remains £100,000 which means that for each £2 in earnings above £100,000, you lose £1 of Personal Allowance. This means that you will not receive any personal allowance when you earn over £125,000 (2018/19 – £123,700).
|Basic rate 20% on earnings between||£12,501 and £50,000||£11,851 and £46,350|
|Higher rate 40% on earnings between||£50,001 and £150,000||£46,351 and £150,000|
|Additional rate 45% on earnings from||£150,001||£150,001|
Please note that the income tax thresholds are different for Scottish residents.
Limited Company profit extraction strategy
Low-salary and high-dividend will keep on being a good profit extraction strategy but we always advise our clients to seek personalised tax advice specific to their own circumstances.
With a salary of £8,632 there are no National Insurance contributions, but you will earn National Insurance credits to protect your estate pension. Your salary will be a tax-allowable expense in the limited company too.
The remainder of the company profit will incur corporation tax and can then be extracted through dividends. It is worth noting that £3,868 of dividends will be tax-free as it would still fall within your personal allowance. This is in addition to your tax-free dividend allowance of £2,000.
There has been no change in the dividend tax rates.
Would you like to learn more about tax-strategies?
Join the Inner Circle our weekly business round up delivered directly to your inbox.