In the event your total personal income from all sources in the tax year exceeds the higher rate threshold (2015/2016 - £42,385), this income may then be subject to an additional personal tax.
In most cases this will be on your dividends from your company and will be at an effective rate of 25% of your net dividends. You would therefore need to consider setting aside 25% of anything you have withdrawn over this threshold to meet the additional tax liability. The final figure will be calculated when you complete your personal tax return after 5 April 2016. This liability is, of course, in addition to any company taxes shown on your Income Statement.
There are a number of steps that may be available to you to reduce this liability now or for future tax years:
Expenses - Ensure all genuine work related personal and business expenses are recorded on the portal to ensure you receive the correct corporation tax relief.
Increasing dividend distributions in the current tax year - you may wish to increase the dividend distributions before April 2016 to take advantage of the lower rates, prior to the dividend rate rise next year.
Defer Dividend distributions until 2016/17 - It may be beneficial to defer the dividend distributions or part of the dividend distributions from the company to the next tax year (appropriate if you expect your income to drop well below the higher rate band in the tax year 2016/17
Company Pension - You may wish to set up a company pension plan or change the level of current contributions. Our in house financial advisors, Haven Global Strategies Limited are available to offer pension advice.
B Shareholder - Dependent upon on your personal circumstances, a B shareholder may be an appropriate consideration for your company.
Change in Circumstances - If you believe that your circumstances may change in the next 6-12 months such as ceasing to trade through your limited company, please speak to us as soon as possible as there may be beneficial tax planning arrangements that you may wish to consider.
Please contact your Dedicated Accounts Team if you wish to discuss any of the above further.