USE YOUR BASIC RATE BAND
Personal tax rates have been held steady for a few years, so it made no dif ference
whether you extracted funds from your company in one tax year or the next.
This is no longer the case as on 6 April 2022 the tax payable on dividends and the national insurance contributions (NIC) due on your salary will both increase by 1.25 percentage points. The basic rate band - where income tax is charged at the lowest rates - has been frozen at £50,270 until 6 April 2026 (different rates and thresholds apply in Scotland).
If you are planning to take cash out of your company it makes sense to maximise the amount which is taxed at lower rates before 6 April 2022. Currently you can extract the following amounts free of tax and NIC in 2021-22:
• £2,000 of dividends; and
• £9,568 of salary.
Further salary or bonus up to £12,570 is tax-free but it will carry NIC at 12% (13.25% from April 2022).
Dividends above £2,000 are taxed at 7.5% if they fall within your basic rate band but from 6 April 2022 the tax will be charged on that income at 8.75%. Dividends in the higher rate and are currently taxed at 32.5% rising to 33.75% from 6 April 2022.
If you are planning significant expenditure in 2022 it may make sense to extract the funds that you need before April, if this does not push you into a higher tax band.
We can help you work out the most tax efficient ways to extract money from your company.