With April year-end payrolls being run at the moment, now is a good time to review the changes in the limits on how much you can take from your business in salary and dividends before becoming a higher rate taxpayer. 

In the tax year starting 6th April 2007, the Higher Rate Tax band kicks in at gross income of £39,825.  Some of this band is however already used up by the salary that you take from your limited company and possibly also from other sources of income.  On the assumption that you take a salary of £5,225  (this is the salary that we recommend in order to use up your tax free allowance), ignoring other possible income this leaves gross dividends of £34,600 available.

Once you have taken more than this in dividends, you need to remember that you will have to pay one quarter of the net amount of any dividend exceeding the higher rate tax band in higher rate tax.  The way that the tax system works could mean that those payments are due on one of several dates, but as long as you set aside this amount you will not be in danger of having a tax bill that you are unable to pay.

As a result if you draw a monthly salary of £435.42 and take net dividends from your company of £2,595 each month, you will pay no national insurance and no higher rate tax, provided that you have no other income. For each £ you take over and above this as a net dividend, you will need to set aside 25p for higher rate tax.

For further advice or to discuss your individual case please speak to your client manager.

Many clients often ask us what the implications are of dying without a will. Many thanks to Mark Underwood for supplying us with the attached will flowchart that explains exactly what would happen. If you have any questions, you can contact Mark on 07920 018498.

Please note that as from the 6th April 2007 the CIS deduction increased from 18% to 20%. You must make sure that you verify every new subcontractor with the HM Revenue and Customs before making a payment as they will instruct you on the correct deduction to make.