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An entrepreneur’s guide to tax rates, thresholds and allowances for 2019 2020

An entrepreneur’s guide to tax rates, thresholds and allowances for 201920

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).

  2019/20 2018/19
Personal allowance   £12,500 £11,850
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.

Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

Would you like to learn more about tax-strategies?

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