Planning is now more important than ever before

Today marks the start of the 2020/21 tax year, which means your tax return for the period 6th April 2019 to 5th April 2020 can now be completed.

In normal circumstances, most of you would be due to make a payment before 31st July 2020 as your 2nd payment on account towards your personal tax liability for 2019/20. However, the July 2020 payment has been delayed as part of the COVID-19 government indicatives and will now be due for settlement by 31st January 2021 along with any balancing payment for taxes.

For most of you this will mean having a significantly higher payment due by 31st January 2021. The end of January is never a nice time to have debts fall due, especially with your Christmas credit cards, and it will be even harder after a very slow period of trade due to COVID-19 disruptions.

If you are also a limited company with a 31st March 2020 year end this will also be the date your company tax bill will be due too! For some of you this may well mean your financial breaking point.

Due to the current situation, planning both short and longer term for your business and personal cash flow is more essential than ever.

I’d recommend start getting this information updated and submitted to us for drafting to ensure you know what taxes lie ahead. Contact one of our team on discovery@a4g-llp.co.uk or 01474 853 856 to get organised. 


Subcontractors refunds

This is especially good news for any subcontractors who have their tax deducted at source as often they are due a refund. If subcontractors complete their tax returns now, the refunds could well be received before the self-employed support available which isn’t able to be applied for until June 2020.

2020/21 – Optimal salary and dividends for directors

Normally at this point we would make suggestions for limited companies for making sure they have efficient salaries and dividends for the directors and owners of the company.  But this year is very different!

As we enter the 2020/21 tax year, we can say what we would normally suggest but you will need to weigh this against your business position. Are you hibernating the company? Will the business make enough profits or have enough reserves for the dividends? With so many questions we recommend that you check in with your client manager if you haven’t done so already.

Under normal conditions we would recommend that with effect from 6th April 2020, your drawings should be taken in the following manner:

£ (monthly)
Salary 730
Dividends* 3,435
Total 4,165

If we run your payroll and you have no other employees, we will process your directors’ payroll at £730 per month unless you instruct otherwise.  If you want to run an amount different to this, you need to contact us by 15th April 2020, otherwise we will assume this standard amount is correct and this will be run for you.

* Please note that this level of dividends will incur an income tax bill of £2,661 for the year. If you are still able to draw those amounts, we would advise you to set aside £222 per month in a personal savings account to cover this tax liability which will be payable in January 2022. Any dividends drawn in addition to the above amounts will incur a tax liability equivalent to at least 32.5% of the additional amount drawn.

When drawing dividends, please remember to complete the appropriate documentation (minutes of a directors’ meeting and dividend voucher). Failure to do so may lead to issues as described further here.

These figures presume that you have no other sources of income. If you do have any other sources of incomegenerating more than approximately £500 of income, please contact us to discuss whether the above figures require some fine-tuning adjustments for your particular circumstances.

Please note that there are specific cases in which we would advise on taking a higher salary level so please get in touch to discuss this.

IMPORTANT NOTE: Dividends can only be paid out of after-tax profits. If you do not have enough retained profits (brought forward plus this year’s) then they will either be disallowed (and result in you owing the money back to the company and having a temporary tax charge payable by the company). If use prior year reserves this may affect your credit rating. This is why taking advice is important right now.

Take action to try to increase director support from Government

This is an incredibly difficult time for owners of limited companies who are seemingly the only group not getting support from the Government.

We have been sharing this petition with all our colleagues, friends and family to push for more help for directors on small salaries during this time. Please also sign this and share with those you know.

Contact me today!

Emma White

FCA

Partner

01474 853856

Send me a message

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