Employment Allowance and Dividends Tax

AMS_Accountants

Hi

I am sure this question has been asked already but was hoping somebody could please advise.

Last tax year, I advised clients to take a £10,600 salary to utilise the employment allowance. This has obviously now changed and 'one man bands' can no longer claim the allowance, meaning that the old £157 per week salary becomes standard.

As £157 x 52 is £8,164 and dividends over £5,000 are taxed at 7.5% (up to a certain point), am I right in assuming that a sole director can take £7,836 in dividends (£5,000 + (£11,000 - £8,164)) without paying any personal tax because they are utilising their personal allowance fully?

Thanks

burg

That is my understanding yes. I still end up with a fair few who would rather pay the NI on an £11k salary as they prefer to actually pay some NI.

AMS_Accountants

I get this too. I have one client that feels like they are ripping off HMRC by not paying NI.

Gem7321

I don't know if you are planning on attending the tax update by Michael Steed but there was an interesting point about if more than one employee or director earns above the secondary threshold the employer will qualify for EA for the whole year. As the ST for employees is on a weekly basis the employer only needs to employ one other person for one week at £156+ to qualify for the EA.

Just food for thought! If there is a spouse or other friend/relative who could do some work for 1 week for £156 it is worth considering.

AMS_Accountants

I have heard about this. So you are saying that a sole director can be eligible for the £3k allowance if they hire a person for at least 1 week and pay them at least £156 for that week?

Gem7321

That's right!

Gem7321

At £156 there would be a small primary NI contribution