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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am a director of my own small limited company (1st year from

Resolved Question:

I am a director of my own small limited company (1st year from May 2015)and I also have an NHS pension for which my personal allowance is set against. (7727.27)I also have a smaller pension on which I am paying BR tax (478.44).
I pay myself a salary mthly of 200 through payroll that my accountant is organising and she is taking 40 a month off in basic rate tax.
I was under the impression that I should not be paying any tax only at the end of the year
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

I'm afraid that your impression is wrong. Salary is taxable as and when it is paid depending on the allocation of personal allowances. As a director, any NIC you pay can either be paid throughout the tax year or in the final few months of the tax year.

Assuming you are under 65, you are entitled to a personal allowance of £10,600 which can be used against your PAYE income sources. Your accountant should call the tax office and have your allowances distributed between the three sources.

It is normal for allowances to be used as far as is possible against pension income first as pensions will normally be paid to you for the rest of your life. From my calculations, you have £2,873 in unused allowances (£10,600 - £7,727) which can be used against your small pension of £478 per annum and your company salary of £2,400 per annum.

I hope this helps but let me know if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

I was under the impression that I could earn up to 44000 before I pay tax on any of my earnings as a limited company. Is that not the case?

Expert:  TonyTax replied 2 years ago.
It would be the case if the only income you drew from your company was dividends that you could take £38,146.50 in net dividends in the current tax year. This equates to £42,385 gross once a notional 10% tax credit is added. This is the sum of the personal allowance of £10,600 and the 20% tax band of £31,785.

Dividends are currently treated as basic rate tax paid in the hands of the shareholder and there is only tax to pay if any of the income goes into the 40% tax band. From 2016/17, even basic rate taxpayers may pay some tax on dividends as a result of changes announced in the recent Budget.

Take a look here for information on dividends and tax as they are currently treated.
Customer: replied 2 years ago.

  1. Thank you for your info. As the questions were both related to the same question and not a separate question Im only happy to pay one fee

Expert:  TonyTax replied 2 years ago.
That's all you will pay.