The current tax year ends on 5th April 2024, which doesn’t leave much time for any tax planning…

If you are the director of a limited company then here are some suggestions on how to save tax:

£12,570 Personal Allowance

This is the amount most people can earn tax free, between 6th April 2013 and 5th April 2014.

For most limited company directors this tax free allowance will have been used up by your monthly salary payments.

£1,000 Dividend Allowance

On top of the personal allowance above, you can receive £1,000 in dividends tax free.

Over this amount you’ll need to pay Dividend Tax (8.75%, 33.75% or 39.35% depending on your tax band).

Remember that dividends are the distribution of profits from your limited company – after Corporation Tax. So your company needs to be making a profit or have retained earnings for dividends to be declared.

Dividend Timings

Dividends are considered part of your income for personal tax purposes either when they are paid or when they are declared (the earliest date applies).

This means that you can declare dividends in the 2023/24 tax year to fully utilise your allowances, but you could actually take the money out of your business bank account in a later tax year.

Any unpaid expenses?

Your limited company should reimburse you for any legitimate business expenses that you have paid for personally (such as mileage, professional subscriptions, home working allowance etc).

Therefore if you haven’t repaid yourself these costs throughout the year, you can extract this money from your company now, free from tax.

Remember that all expenses must be “wholly, exclusively and necessarily” incurred in the performance of your duties and you should keep evidence of the costs being claimed.

£100k Personal Allowance Reduction

If your income exceeds £100,000 during the tax year your personal allowance will reduce by £1 for every £2 earned, until £125,140 which in most cases is when it’s removed altogether.

Therefore if your income levels are close to this and you would normally take dividends with your salary at the end of March, you might want to consider delaying the payment until 6th April, thereby making the dividend payment fall into the next tax year.

Of course if your earnings are expected to remain the same or even increase in the 2024/25 tax year then you push the problem forward, but this is wise tax planning if it looks like you might have some downtime ahead!

Pump up your pension…

If your personal income is likely to push you into the higher tax band then pension contributions are a great way of reducing your liability, as well as saving for your future.

If paid from the limited company they also reduce it’s Corporation Tax bill so win : win!

If you don’t yet have a pension in place and need some advice then get in touch asap and there might just be enough time to get you a pension in place before the tax year end.

Profits don’t have to be taken!

Don’t feel that you always have to remove available profits from your limited company.

If the money is not a necessity to fund your living requirements, then you can leave the profits in the business and declare dividends in later months or years.

Remember if you work as a contractor then you may need to keep reserves in the business to support you in between contracts, known in the sector as a war chest for time on the bench!

How and when is personal tax paid?

If, based on the above, you have personal tax to pay then you will need to declare this in your 2023/24 self assessment tax return. This needs to be filed with HMRC, with your tax paid, by 31st January 2025.

Year-end Tax Planning 2023/24