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tax return forms 2010-11/personal tax planning for limited companies

6th Sep 2011
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Tax return 2010-11: tax position 2010-11

I have now completed my review of your personal tax return form 2010-11 and filled in all pages except for page 15(9): “if you are claiming to reduce your 2011-12 payments on account, put X in the box 10 –enter the reduced amount of your first payment in box 10 and say why you are making the claim in box 16 overleaf.”

Your personal tax drawings in the tax year 2010-11 translate to you paying higher rate tax on your dividends in 2011-12.

Higher rate tax is at 32.50% less 10% = 22.50% payable by 31/01/2012, 5 months hence.

Your total income was made up of salary £48000 + benefits £3451 + dividends (plus the 10% tax credit) £46935 = £98385 less personal allowance £6475 = £91910 net income.

This meant £91910 less pay £48000 less £1 bank/building society interest = £43909 subject to higher rate tax on dividends at 22.50% = £9879.53 + (benefits- in- kind £4809 x 40% tax = £1923.60)+£124.94 (periphery tax on your salary) = £11928.07 payable by 31/01/2012.

HMRC software automatically assumes same levels of salary/dividends in the tax year 2011-12 and so demand half the tax again at £5964.04 so that the total payable is £11928.07 + £5964.04 = £17892.11by 31/01/2012.

Personal tax Planning 2010-11:

If your level of salary /dividends will be lower in the tax year 2011-12 than in 2010-11 then let me know and I will make an election on your tax return form 2010-11 page 15 to reduce this amount.

Overall tax planning for corporation tax/personal tax

Options:

Vote an interim dividend (lots of companies do) to cover this tax liability at £17892.11 x 10/9 = £19880.

Have a different mix of salary/dividends so that less tax is due on your personal dividends (does not fall on you personally)  but more  tax is due on your salary, but payable by the limited company in the form of paye.

Tax is dynamic so that it always changes.  Currently, government is lowering corporation tax rates from 21% to 20% making dividends a better option than salary as corporation tax is reduced: also, raising personal NI rates making salaries less inviting. 

However, please remember that salaries are corporation tax deductible whilst dividends are not because these are a distribution of profits leading to higher amounts of corporation tax payable.

Consider your net income requirement and from this can be worked out a proper salary/dividends/benefits in kind mix.

Consider the tax advantages  for a pool car with full corporate tax deduction/negligible personal tax consequences.

Consider benefits- in- kind legislation and find if any meets with your needs (have nil NIC /negligible tax consequences.)

Compute the number of miles from the date of incorporation of the company?

Times this figure by 40p for the first 10000 miles per fiscal year (06/04-05/04 of the following tax year.)  For any balance times this by 25p. per mile.

Work out the total and deduct year on year whatever the company has paid you as reimbursement for business miles.

The differences for each tax year are added together and credited to your directors loan account.

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