The savings rate band combined with the savings allowance means that directors may be better off taking interest in place of some dividends, explains Rebecca Cave.
The government surely didn’t intend directors to extract up to £22,000 tax free from their own companies each year, but that could be possible from 2016/17 using the following allowances:
- personal allowance (PA): £11,000 - all income exempt from tax
- savings rate band (SRB): £5,000 - interest taxed at 0%
- personal savings allowance (PSA): £1,000 - interest taxed at 0%
- dividend allowance (DA): £5,000 - dividend taxed at 0%
I emphasis “could be possible” as in many cases it won’t be achievable, because the company won’t...