Company directors may be paying too much tax, accountancy firm warns

An accountant is urging company directors to review how they pay themselves through salary and dividends in light of recent changes to allowances. 

Mark Leadley, a divisional director at JF Hornby & Co, suggests that subtle tweaks – or wholesale changes – might be necessary to ensure director remuneration packages are tax efficient.

This advice comes with the new tax year now well underway and following government updates across various areas of taxation.

“Business owners are focused on the day-to-day running of their companies, managing their teams, processes, and keeping an eye on the bottom line,” said Mark.

“All this can mean they take their eye off the ball when it comes to paying themselves, and they might be handing over more in income tax than necessary.” 

He is urging anyone who is a director of a business and takes a salary through a mix of dividends and PAYE to check whether they have the optimal combination in place.

The government has recently increased the levels of corporation tax that a company must pay on its profits. 

The new corporation tax rate for profits over £250,000 is 25%, up from 19%. Meanwhile, the tax free dividend allowance is now only £500, meaning directors will be taxed on dividends received over this new threshold at rates depending on their income tax bands (8.75% for basic rate, 33.75% for higher rate, and 39.35% for additional rate).

Mark described these changes as a “kick in the teeth” for business owners, when higher tax and reduced allowances are combined. “It’s crucial for business owners who pay themselves through these methods to be aware of the changes and take necessary measures to ensure they are as tax efficient as possible,” he explained.

While supportive of business owners contributing to the UK’s economy through taxation, Mark also emphasised the role of accountants in ensuring compliance with HMRC guidelines in the most efficient manner.

“We work with more than 1,000 businesses – everything from sole traders to companies of significant size and turnover – to help them plan their tax affairs in a compliant, efficient manner.

“We don’t expect business owners to be up to date with the latest taxation information – that’s our job, it’s why we are here and it’s what we excel at.”

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