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Autumn Budget 2017: Micro companies and profit extraction

23rd Nov 2017
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Elaine Clark analyses the effect of the Budget announcements on the profit extraction policies of the one-person company.

No news is good news

For the first time in many a Budget, the news delivered by Philip Hammond for micro companies was rather dull, which can only be good news.

The rumours of the IR35 public sector changes being rolled out to the private sector were unfounded although there will be a “careful” consultation. Would a cynical person be criticised for thinking that the potential backlash from large corporations against such a change would be suicidal for the government?

Anyway, the roll-out of the public sector IR35 reforms to the private sector may come back at some point, but for now let’s concentrate on what we do know.

Known facts

The personal allowance increases to £11,850 and the higher rate threshold to £46,350. The primary threshold for NIC increases slightly to £162 per week (£702 per month). Of course, we were already aware that the Dividend Allowance reduces to £2,000 from 6 April 2018.

Taking all of the above and applying this to a typical micro company owner operating on their own, would see them set a salary at the earnings limit of £702 per month with £5,426 being taken in dividends to use up the remainder of the personal allowance and dividend allowance. Further dividends of £32,500 up to the higher rate threshold would be taxed at 7.5%.

All of this means that an income of £46,350 for a micro business owner, operating on their own, would attract dividend tax of £2,437.50 for 2018 /19.  See my blog for the detailed calculations of these figures.

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