On 18 November 2025 new changes came into force from Companies House, requiring company directors to verify their identity.  The aim is to make the UK company register more reliable, transparent and resistant to fraud.

Why are these changes happening?

In recent years, concerns about economic crime and fraudulent activity have driven changes to strengthen UK corporate governance. One of the core reforms of the Economic Crime and Corporate Transparency Act 2023 is mandatory identity verification for individuals connected with companies.

As part of this, Companies House is now checking that directors and other influential company figures are who they claim to be.

Checking identities helps protect honest businesses and improves confidence in the UK corporate registry — to the benefit of everyone from lenders to investors.

Who needs to verify their identity?

The new requirements apply to:

• Company directors, whether newly appointed or already in post
• Persons with significant control (PSCs) (typically someone who owns or controls a company)

In some cases, members of LLPs and individuals filing information at Companies House may also need to get verified.

If you’re a director of more than one company, you’ll need verification for each role and to provide a special code when required.

How do directors verify their identity?

Identity verification is straightforward, and in most cases can be done online via one of two routes:

• GOV.UK One Login: Directors can verify their identity for free via this service, using a biometric passport or UK driving licence. Find out more here.
  
  
• Authorised Corporate Service Providers (ACSPs): Many businesses choose to use an accountant or agent who is registered with Companies House to handle verification on their behalf. Wootton & Co is registered, so we can perform this for you.

Once verified, you’ll receive a personal Companies House code. This unique identifier proves you’ve completed your ID check – and it must be used when filing certain documents, including confirmation statements.

When do I need to verify by?

For new directors and newly appointed PSCs, verification is required as soon as they take up their role from 18 November 2025 onwards.

For existing directors and PSCs, Companies House is phasing in the checks over a 12-month period. In practice, this means directors must have verified their identity by the time they file their next confirmation statement after 18 November 2025.

What happens if I don’t verify?

Failing to verify your identity can have significant consequences:

• You may be unable to file confirmation statements or incorporate a new company
• You might be barred from acting as a director or PSC
• In some cases, persistent non-compliance could lead to enforcement action or penalties.

What this means for your business

For most companies, verification is a one-off admin job. But it’s important to plan ahead, especially if you have directors or PSCs who haven’t yet started the process.

Getting verified early not only keeps you compliant but makes sure there are no delays to future filings. Most people find the process quick and simple.

If you’d like help navigating your responsibilities with Companies House – from verifying identities to managing filings – we’re here to support you. Contact us today.

Every government budget has its impact on small businesses, and this was no exception. All eyes were on tax rises, having been on the horizon for some time.

While Chancellor Rachel Reeves stuck to Labour’s promise not to raise income tax, the continued freeze on thresholds means more people will start paying it for the first time, and many will move into higher tax brackets.

Here are some of the key changes for small businesses in Peterborough and beyond.

Increase to Minimum Wage

Rachel Reeves had already revealed that the National Minimum Wage will rise in April 2026. The rise is significant for employees on lower pay – but could cause concern for employers already facing rising costs.

From April 2026, the new minimum wage rates will be:

• Over 21s: £12.71 per hour (up from £12.21)
• 18–20-year-olds: £10.85 per hour (up from £10.00)
• 16–17-year-olds and apprentices: £8.00 per hour (up from £7.55)

Ahead of the Autumn Budget, small business owners had already shared their worries about meeting increased wage costs in an economy that’s already under pressure.

For businesses still managing the cost-of-living crisis and sluggish economic growth, it’s another financial strain.

Could the increase mean reduced recruitment, or even job losses for companies struggling to balance rising overheads?

Income Tax & National Insurance

Rumours of an Income Tax rise were disproved, although the Chancellor confirmed a freeze on Income Tax and National Insurance thresholds until 2030–31. This is an extension to the previous deadline of 2028–29.

The thresholds remain the same:

Band	Taxable Income	Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571–£50,270	20%
Higher Rate	£50,271–£125,140	40%
Additional Rate	Over £125,140	45%

While this doesn’t directly increase business tax bills, it will affect the workforce. With wages rising and thresholds staying still, more employees will be pushed into basic, higher or additional tax bands.

According to the OBR, the extended freeze could generate around £8 billion by pushing workers into paying more tax.

If you’re an employer, consider how to educate your people about this. Staff may be confused or concerned about changes to their take-home pay. Inviting open conversations and offering guidance will help them feel supported.

Limits on Salary Sacrifice

Another key announcement was the introduction of salary sacrifice limits for pension contributions.  Currently, employees can sacrifice as much of their salary as they like, to grow their pension and reduce their tax and NI liability.

Under the new rules, any salary sacrifice above £2,000 per tax year will be open to National Insurance charges. This closes a loophole that previously allowed large savings to NI.

You may have team members close to retirement who are paying large amounts into their pensions each month. These changes will have an impact to them. From 2029, not all their sacrificed salary will reach their pension intact, with some now be deducted as NI.

Communicating this to your staff will help them plan their retirement contributions effectively.

Youth Employment Guarantee

The Chancellor also launched the Youth Employment Guarantee, focused on young people who’ve been out of work for 18 months or more. They’ll be offered paid placements to help them back into employment.

A positive change for SMEs is that apprenticeships for under 25s will become completely free for smaller businesses. This removes a major cost barrier and opens up opportunities for SMEs to invest in the next generation of talent.

Personal impacts

This Budget touched every corner of the economy – from business operations to household finances.

Many changes will affect you and your employees personally, including future per-mile taxes on electric vehicles, new charges for properties worth over £2m and the removal of the two-child benefit cap.

The cash amount under 65s can pay into an ISA has also been reduced to £12,000 a year.

Economy forecasts

An increase to UK GDP has been forecast for this year by the OBR. GDP will grow by 1.5% in 2025, above 1% expected.

But from then on, the outlook is downgraded. There are still predictions for growth, but at a slower rate than previously believed.

Summing up

Overall, the Budget is being described is less severe than expected, but still it will have implications for both businesses and individuals.

If you would like to explore how best to manage the changes your business is facing, just get in touch and we’d be glad to help.

Running a small business in Lancashire can be really rewarding, but there are challenges too – especially when it comes to keeping up with tax rules that seem to change every year.

As accountants who work with many local business owners, we know how easy it is for busy entrepreneurs to lose track of key deadlines, deductions, or HMRC updates.

This guide breaks down the main things Lune Valley small business owners need to know about taxes in 2025 – and how you can stay compliant while keeping more of your hard-earned profit.

1. Understand the 2025 tax thresholds

The 2025/26 tax year brings a few important changes to thresholds that affect small businesses:

Corporation Tax: The main rate remains at 25%, but companies with profits under £50,000 still benefit from the small profits rate of 19%.

National Insurance: The government has reduced Class 4 National Insurance for the self-employed to 6%, offering some relief to sole traders.

Personal Allowance: The £12,570 personal allowance continues to apply, meaning many directors and small business owners can structure income efficiently.

These changes might sound minor, but they can significantly affect your take-home pay – especially if your income straddles multiple thresholds. A local accountant like us can help you plan distributions and salaries to minimise unnecessary tax.

2. Keep your books digital and HMRC-ready

With Making Tax Digital (MTD) now fully rolled out for VAT-registered businesses, and soon to apply to Income Tax Self-Assessment (ITSA), 2025 is the year to ensure your bookkeeping system is fully digital.

Using cloud software such as Xero or QuickBooks not only keeps you compliant but also gives you real-time insight into your cashflow and tax liabilities.

At Wootton & Co, we’ve helped many Lune Valley businesses transition smoothly to MTD – avoiding penalties and saving hours of admin each month.

3. Claim the right deductions

Many small businesses still miss out on allowable expenses each year. Commonly overlooked deductions include:

• Home office and utilities (for those running businesses from home)
• Mileage and travel costs for local client visits
• Professional fees, training, and subscriptions
• Capital allowances on equipment or vehicles

These add up quickly. A well-structured expense strategy ensures you only pay what’s truly owed, and  nothing more.

4. Plan ahead for VAT

If your annual turnover exceeds £90,000, VAT registration is mandatory. Even if you’re under the threshold, voluntary registration can make sense for certain businesses — particularly if your clients are VAT-registered or if you have significant VATable expenses.

We often advise Lune Valley businesses on when to register and how to use VAT schemes (like the Flat Rate Scheme) to simplify reporting.

5. Look out for local opportunities

Lancashire continues to grow as a hub for professional services and creative industries. The local authority frequently announces grants, apprenticeships, and innovation funding for small firms.

Keeping an eye on local business support schemes can make a real difference – and your accountant should be helping you identify those opportunities.

6. Get expert support – before it’s urgent

Tax planning shouldn’t be a once-a-year panic. With early, proactive advice, you can forecast your liabilities, manage cashflow, and set aside the right amount before deadlines approach.

At Wootton & Co, we specialise in supporting small businesses across Lancashire with practical, year-round tax guidance. Whether you’re just starting out or scaling up, we’ll help you stay compliant and confident about your financial future.

Ready to take control of the 2025/26 tax year?

If you’re a Lune Valley-based business owner looking to simplify your tax life, get in touch today.

We’ll help you understand your numbers, plan ahead, and make sure you’re getting every allowance and deduction you deserve. Contact us today!

If you’re a company director and have ever dipped into company funds for a personal loan, you need to know about Section 455.

It’s a Corporation Tax charge that applies when director loans aren’t repaid on time – and it can be a costly surprise if you’re not prepared.

This blog explains what it is, how it works and how to stay on the right side of HMRC.

What is Section 455 tax?

Section 455 (or S455) is a Corporation Tax charge on loans from a ‘close’ company (which includes most small private limited companies controlled by five or fewer people) to a participator – usually a director, shareholder or someone connected to them.

If you borrow money from the company and don’t repay it within nine months and one day after the company’s year-end, the business has to pay 33.75% of the outstanding amount to HMRC.

The charge isn’t permanent – once the loan is repaid, the company can reclaim the tax. But it still has to be paid upfront, which can put a strain on cash flow.

Here’s an example:

You borrow £10,000 from your company and miss the repayment deadline. Your business owes HMRC £3,375. If you repay the loan later, you’ll get that money back – but not quickly. HMRC refunds can take months.

Why does it exist?

Quite simply, HMRC doesn’t want directors taking money out of companies as ‘loans’ to avoid paying income tax or dividend tax. Aligning the S455 rate with dividend tax (33.75% in 2025) keeps things fair – and discourages directors from treating loans as a tax-free income stream.

When does S455 apply?

You’ll face an S455 charge if:

A director or shareholder borrows money from the company and that loan (or balance on a director’s loan account) isn’t repaid within nine months of year-end. The loan isn’t covered by an exemption.

S455 doesn’t just apply to money you take directly. Loans to family members, business partners or even through third parties can also be caught.

Are there any exemptions?

Yes. Not every loan triggers an S455 charge. Common exceptions include:

• Small staff loans: Where the loan is under £15,000 and made to a full-time employee who isn’t a shareholder.
• Trade credit: Normal business transactions, like unpaid supplier bills, as long as they’re settled within six months.
• Repayment on time: Clear the balance before the nine-month deadline, and there’s no charge at all.

But even if you avoid S455, large or interest-free loans over £10,000 may create a ‘benefit-in-kind’ for the director, which means extra personal tax and National Insurance for the company.

Common pitfalls

Directors often get caught out by:

• ‘Bed and breakfasting’: Repaying just before the deadline, then re-borrowing soon after. HMRC’s 30-day rule treats this as if the loan was never repaid.
• The £15,000 arrangements rule: Even outside the 30-day window, if there’s an agreement to borrow again, HMRC can still apply the tax.
• Multiple small loans: HMRC can combine them and treat them as one balance, so keeping good records is essential.

How to reclaim S455

Once a loan is repaid or cleared (for example, through a dividend), your company can apply for a refund. Claims are made either via the CT600 Corporation Tax return (if recent) or using form L2P for older loans.

The catch is that you’ll need to wait until nine months after the end of the accounting period in which the loan was repaid. In practice, this means the company may not see its money back for well over a year.

How to avoid S455 tax altogether

The best approach is prevention. Some smart steps include:

• Keeping your director’s loan account up to date with accurate bookkeeping.
• Declaring dividends properly (with board minutes and sufficient profits) rather than relying on informal withdrawals.
• Repaying loans in full and on time – and avoiding the temptation to reborrow straight away.
• Getting professional advice if you’re unsure, especially if loans are frequent or significant.

Summary

S455 tax isn’t the end of the world – but it can create an unnecessary cash-flow headache for businesses that don’t plan ahead. If you use director loans regularly, treat them with caution. Keep records, know your deadlines, and clear balances on time.

And if you’ve already paid S455 tax, remember it’s reclaimable – it just takes patience (and good paperwork). Make sure you understand how Section 455 works, as that can save your company money, hassle and prevent a few sleepless nights.

Understanding the rules around S455 tax can be complex, especially when director loans are used regularly as part of your company’s cash flow. At Wootton & Co, we help businesses avoid unexpected charges and keep tax bills under control. Get in touch today and let us help you.

If you run a small business, you could find tax admin taking up precious time. But the good news is that HMRC recognises the challenges – and has a transformation roadmap to make tax quicker and simpler over the coming years.

By 2030, HMRC wants at least 90% of customer interactions to be digital. That means more online tools, fewer paper forms, and hopefully less time lost to phone queues. Here’s what’s in the pipeline and how it could make your life easier.

1. No “Making Tax Digital” for corporation tax (for now)

HMRC has confirmed it won’t be rolling out Making Tax Digital (MTD) for corporation tax – at least, not in the near future. Instead, the focus will be on upgrading internal systems to make corporation tax compliance smoother.

MTD is already in place for VAT, and from April 2026, it’s coming to income tax for people earning over £50,000 (dropping to £20,000 by April 2028). HMRC is also exploring how to include those with even smaller incomes – but corporation tax will stay out of the MTD club for now.

2. E-invoicing and pre-filled tax forms

One of the biggest headaches with tax is human error – missing figures, miscalculations, or forgetting to file something. HMRC is aiming to cut this down by:

• Expanding e-invoicing
• Pre-populating tax returns with data they already hold
• Sending “nudge” reminders to help with Self-Assessment and corporation tax filing
• Automatically registering people for Self-Assessment where needed

The idea is to make returns faster and less error-prone – saving you time and reducing the risk of an unexpected HMRC letter.

 3. Goodbye Government Gateway, hello One Login

If you’ve ever struggled to remember your Government Gateway details, this could be good news. Between 2026 and 2027, HMRC will phase in GOV.UK One Login a single, more secure way to sign in to all government services.

It will come with a new feature allowing you to store important details like your National Insurance number in a wallet on your smartphone.

4. More training and AI help

From 2025 to 2026, HMRC will launch new educational packages to help small businesses get to grips with tax responsibilities. They’re also investing in AI-powered digital assistants and a personalised support system, so you can (hopefully) get answers faster.

5. Side hustle reporting made simple

If you’ve got a small side hustle – such as selling goods online or occasional freelance work – there’s change coming. By 2029, the tax-free threshold for small self-employed earnings will rise from £1,000 to £3,000.

HMRC plans to introduce a new digital reporting service for people earning below that figure, making it easier to stay compliant without a mountain of admin.

6. Cracking down on fraudulent umbrella companies

New rules coming in April 2026 will target umbrella companies involved in tax avoidance or fraud. Draft legislation is now in circulation, so expect stricter checks and tighter compliance here.

7. Companies House verification

The government wants to improve the visibility of company ownership in the UK – and so business owners will need to verify their identity via Companies House in the coming months.

If you own a limited company or are a person of significant control then you’ll need to take steps to meet ID verification requirements from 18 November 2025, within a 12-month transition period.

This change comes as part of an update to the Economic Crime and Corporate Transparency Act 2023, which aims to stop people setting up companies for illegal activities and reduce fraud.

Other updates

The roadmap also includes:

• Higher interest rates for late payments (already in place from April 2025)
• A phased-in online service for PAYE taxpayers
• A state pension forecast tool
• SMS confirmations for certain HMRC services
• Digital inheritance tax filing from 2027
• Direct-to-bank tax refunds

Plus, HMRC is leaning heavily into AI. If you already use accounting software that automatically tracks sales, applies the right VAT rates, and preps reports for you, you’re ahead of the game.

The bottom line

These changes won’t happen overnight, but the potential benefit is clear: less time on tax admin means more time to focus on growing your business.

While it’s great to see HMRC embracing technology, tax rules are still complex. If you’re unsure how these changes affect you, speak to an accountant. The right advice now can save you a headache (and potentially some money) later.

Need some help and support for your small business? Talk to your local accountants in the Lune Valley region. Contact us today.

If you run your own limited company, you’ve probably got an extensive to-do list – and pension planning often falls to the bottom. 

But as a company director, there’s a big opportunity here. Paying into a private pension directly from your business can be one of the most tax-efficient decisions you make. Here’s how it works, and why it’s worth your attention.

Do I need a pension as a company director?

Pensions aren’t just for employees working 9 to 5. As a company director, you’re responsible for your own financial future. That means setting aside money now to make sure you’re comfortable later. And unlike savings accounts or ISAs, pensions come with some very attractive tax perks, especially when paid through your limited company.

Tax advantages are the real game-changer

If your limited company makes pension contributions directly into your private pension (also known as an employer pension contribution), you can reduce your corporation tax bill. 

That’s because pension contributions are considered an allowable business expense – provided they meet HMRC’s “wholly and exclusively” rule, meaning they’re made for the purposes of the business (which they are, in this case, as part of your remuneration package).

Imagine your company pays £10,000 into your pension. That £10,000 is deducted from your profits before corporation tax is calculated. If you’re paying the standard 25% corporation tax, that could save your business up to £2,500 in tax. So you’re effectively investing in your future and lowering your tax bill.

No National Insurance 

Another bonus: unlike salary payments, employer pension contributions aren’t subject to National Insurance (NI). If, like many directors, you’re paying yourself mostly in dividends and want to avoid bumping up your PAYE salary, pension contributions are a savvy way to boost your long-term income without the usual NI costs.

Carry forward benefit

If you have a large amount you’d like to contribute, you may be able to benefit from the ‘carry forward’ rule.

This lets you use any unused annual allowance from the previous three tax years as long as you’ve been a part of a registered pension scheme during this time.

So, if you haven’t used your total allowance over the last three tax years, you can use the leftover amount to boost your contributions this year.

How to make the contributions

Setting it up is simpler than you might think. If you already have a personal pension, you can usually just inform your provider that you’ll be making contributions from your limited company, not from your personal bank account.

Then, your company makes the payment straight from the business account into the pension. You’ll want to keep clear records of these transactions for your accountant, especially around your year-end accounts.

It’s always worth getting your accountant involved to make sure everything is recorded correctly and the contributions fall within annual limits. 

For the 2025/26 tax year, most people can contribute up to £60,000 into their pension tax-free (this includes all personal and employer contributions), though this limit might be lower if you’re a high earner.

Wider reach

If your spouse works for the business (and is on payroll), your company could also make pension contributions on their behalf – assuming it’s a genuine employment arrangement. This is another way to keep money in the family and make use of more tax allowances.

Final thoughts

Paying into a private pension directly from your limited company isn’t just a smart tax move. It’s also a solid step toward building financial security for later life. It’s one of those rare win-win scenarios where you save on tax now and set yourself up for the future.

Of course, everyone’s circumstances are different, so it’s wise to speak to a financial adviser or accountant before jumping in. But if you’re a company director looking to make the most of your business profits, this is definitely something to have on your radar.

Don’t leave retirement planning on the back burner – it could be one of the most rewarding business decisions you make.

As Lune Valley accountants we provide limited companies with tax advice, company accounting and payroll services. Get in touch.

The Let Property Campaign (LPC) is an ongoing initiative by HMRC inviting individual landlords to disclose previously undeclared rental income.

Whether it’s due to oversight, misunderstanding of the obligations or changes in personal circumstances, many landlords find that they have underpaid their tax.

The LPC provides a structured, fairly lenient pathway to correct any issues.

What is the Let Property Campaign?

The LPC is designed to help residential landlords bring their tax affairs up to date. It applies to individuals renting out property in the UK or abroad, including those letting:

• Single or multiple residential properties
• Holiday homes
• Rooms in their primary residence
• Properties as non-resident landlords

The campaign is not open to companies, trusts or those renting non-residential property such as shops or offices.

Why participate?

The primary benefit of using the LPC is reduced penalties. Normally, penalties for undeclared income can be severe – up to 100% of the tax owed for UK income and up to 200% for offshore income.

Under the LPC, HMRC is more lenient, often reducing penalties significantly or even waiving them entirely if you are cooperative and proactive.

Landlords who make a disclosure under the campaign avoid the risk of formal investigation, which could lead to higher penalties, interest and the potential to be publicly naming on HMRC’s deliberate defaulters list.

The Disclosure Process

The LPC follows a four -stage process:

1. Notify HMRC

Landlords must first inform HMRC of their plans to disclose through the Digital Disclosure Service. Once registered, they will receive a Disclosure Reference Number (DRN) and must then submit their full disclosure within 90 days.

2. Prepare the Disclosure

During the 90-day period, landlords must:

• Calculate their rental income and allowable expenses
• Determine the tax owed, including interest and applicable penalties
• Identify how many years of under-declared income must be disclosed

The number of years depends on the behaviour that led to the underpayment:

• Up to 4 years if the taxpayer took reasonable care
• Up to 6 years if the mistake was careless
• Up to 20 years for deliberate or concealed errors

Importantly, the LPC covers all undeclared income  not just rental earnings. This could include other sources such as overseas income, dividends, or capital gains.

3. Submit and pay

The disclosure must be submitted online along with full payment. If immediate payment isn’t possible, landlords can contact HMRC to agree on a payment arrangement. Failure to submit within the 90-day window could mean losing any favourable LPC terms.

4. HMRC review and finalisation

Once the disclosure is submitted, HMRC will review it. In most cases, assuming the information is accurate and comprehensive, they will accept the disclosure without further queries. Landlords should keep records of all calculations and correspondence in case of future questions.

Past and future

Landlords should view the LPC not just as a one-time correction opportunity but as a prompt to keep improving their tax compliance.

HMRC is increasingly using data from letting agents, local councils, tenancy deposit schemes and the Land Registry to identify non-compliant landlords, so it’s a good idea to stay ahead and be proactive.

Also, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) starts from April 2026 for landlords with income over £50,000, and in 2027 for those earning over £30,000. Essentially, accurate reporting in digital form will soon be mandatory.

Need advice?

The Let Property Campaign is an important opportunity for landlords to correct past issues and keep any penalties to a minimum.

Professional advice is often worthwhile, and by acting now, you can avoid future penalties and prepare for the upcoming changes in tax reporting.

As Lune Vally accountants we help landlords with tax advice, accounting and more. Get in touch!

If you’re a director of a UK limited company, determining how to pay yourself – through salary, dividends, or a combination of both – is a crucial part of tax efficiency.

In this article we explore the pros and cons of each approach to help you make an informed decision.

Paying Yourself a Salary

Opting for a salary means your company pays you through the PAYE (Pay As You Earn) system. This salary is a deductible business expense, reducing your company’s Corporation Tax liability.

The Advantages

• Tax Deductible: Salaries reduce your company’s taxable profits.
• State Benefits: Regular salary payments contribute to your National Insurance record, maintaining your entitlement to state benefits and pension.
• Stable Income: Provides a consistent income stream.

Considerations:

Employer registration: If you decide to take a director’s salary, you may need to register your company as an employer with HMRC and enrol for Pay As You Earn (PAYE). This requirement applies even if you’re the only person working for your company.

National Insurance Contributions (NICs): Both employer and employee NICs apply, which increase the overall tax burden for your business.

Income Tax: Salaries are subject to Income Tax based on your tax band.

For the 2024/25 tax year, the personal allowance is £12,570. Earning up to this amount means you won’t pay Income Tax. However, NICs may still apply depending on your salary level.

Paying yourself through dividends

Dividends are distributions of your company’s post-tax profits to its shareholders. Dividend income is reported and taxed differently from salary income. It’s not paid through PAYE, and isn’t subject to Income Tax or National Insurance contributions.

Advantages:

• Lower Tax Rates: Dividend tax rates are generally lower than Income Tax rates.
• No NICs: Dividends aren’t subject to NICs, reducing your tax liability.
• Flexibility: You can time dividend payments to suit your financial needs and the business’ performance.

Considerations:

Profit dependency: Dividends can only be paid if your company has sufficient post-tax profits.

Tax-free allowance: For 2024/25, the first £500 of dividend income is tax-free.

Dividend Tax Rates for 2024/25:

•  Basic Rate: 8.75% on income between £12,571 and £50,270.
• Higher Rate: 33.75% on income between £50,271 and £125,140.
• Additional Rate: 39.35% on income over £125,140. ([1st Formations][4])

Combining Salary and Dividends

Many directors find that a combination of a modest salary and dividends offers the most tax-efficient approach. For instance, taking a salary up to the personal allowance threshold ensures no Income Tax is due, while the remainder of your income can be drawn as dividends.

By structuring your remuneration this way, you will pay less personal tax than by taking all your income as a director’s salary. Plus, you won’t pay employee NICs on your salary, and your company will be able to avoid, minimise, or offset any employer’s National Insurance liability.

Additional Considerations

Pension Contributions

Your company can make pension contributions on your behalf, which are deductible business expenses and can reduce your Corporation Tax bill.

Director’s Loans

While it’s possible to borrow money from your company, strict rules apply, and improper use can lead to tax penalties.

Family Involvement: If family members assist in your business, compensating them through salaries or dividends can be tax-efficient, provided it’s justified and complies with HMRC regulations.

In summary…

Choosing the right mix of salary and dividends depends on your company’s profitability, personal financial needs and long-term goals. An accountant can help you tailor a strategy that aligns with your circumstances and ensures you stay the right side of tax laws.

As Lune Valley accountants we work with limited companies and sole traders to provide tax advice, company accounting and payroll services. Get in touch with us today.

If you’re a director of a UK limited company, determining how to pay yourself – through salary, dividends, or a combination of both – is a crucial part of tax efficiency.

In this article we explore the pros and cons of each approach to help you make an informed decision.

Paying Yourself a Salary

Opting for a salary means your company pays you through the PAYE (Pay As You Earn) system. This salary is a deductible business expense, reducing your company’s Corporation Tax liability.

The Advantages

• Tax Deductible: Salaries reduce your company’s taxable profits.
• State Benefits: Regular salary payments contribute to your National Insurance record, maintaining your entitlement to state benefits and pension.
• Stable Income: Provides a consistent income stream.

Considerations:

Employer registration: If you decide to take a director’s salary, you may need to register your company as an employer with HMRC and enrol for Pay As You Earn (PAYE). This requirement applies even if you’re the only person working for your company.

National Insurance Contributions (NICs): Both employer and employee NICs apply, which increase the overall tax burden for your business.

Income Tax: Salaries are subject to Income Tax based on your tax band.

For the 2024/25 tax year, the personal allowance is £12,570. Earning up to this amount means you won’t pay Income Tax. However, NICs may still apply depending on your salary level.

Paying yourself through dividends

Dividends are distributions of your company’s post-tax profits to its shareholders. Dividend income is reported and taxed differently from salary income. It’s not paid through PAYE, and isn’t subject to Income Tax or National Insurance contributions.

Advantages:

• Lower Tax Rates: Dividend tax rates are generally lower than Income Tax rates.
• No NICs: Dividends aren’t subject to NICs, reducing your tax liability.
• Flexibility: You can time dividend payments to suit your financial needs and the business’ performance.

Considerations:

Profit dependency: Dividends can only be paid if your company has sufficient post-tax profits.

Tax-free allowance: For 2024/25, the first £500 of dividend income is tax-free.

Dividend Tax Rates for 2024/25:

•  Basic Rate: 8.75% on income between £12,571 and £50,270.
• Higher Rate: 33.75% on income between £50,271 and £125,140.
• Additional Rate: 39.35% on income over £125,140. ([1st Formations][4])

Combining Salary and Dividends

Many directors find that a combination of a modest salary and dividends offers the most tax-efficient approach. For instance, taking a salary up to the personal allowance threshold ensures no Income Tax is due, while the remainder of your income can be drawn as dividends.

By structuring your remuneration this way, you will pay less personal tax than by taking all your income as a director’s salary. Plus, you won’t pay employee NICs on your salary, and your company will be able to avoid, minimise, or offset any employer’s National Insurance liability.

Additional Considerations

Pension Contributions

Your company can make pension contributions on your behalf, which are deductible business expenses and can reduce your Corporation Tax bill.

Director’s Loans

While it’s possible to borrow money from your company, strict rules apply, and improper use can lead to tax penalties.

Family Involvement: If family members assist in your business, compensating them through salaries or dividends can be tax-efficient, provided it’s justified and complies with HMRC regulations.

In summary…

Choosing the right mix of salary and dividends depends on your company’s profitability, personal financial needs and long-term goals. An accountant can help you tailor a strategy that aligns with your circumstances and ensures you stay the right side of tax laws.

As Lune Valley accountants we work with limited companies and sole traders to provide tax advice, company accounting and payroll services. Get in touch with us today.

The Chancellor, Rachel Reeves, prefaced the Spring budget with a reminder that Labour was elected “bring change, provide security for working people and deliver a decade of national renewal”.

This has been made more difficult in recent months amid weaker-than-expected growth, and uncertainty in US markets pushing up borrowing costs. She said that the “global economy has become more uncertain.”

Overview for businesses

This budget has fewer direct implications for small businesses than the Autumn budget in October 2024. Importantly, there are no changes to tax.

The main focus of this budget is to cut the welfare budget and find money for new homes, government efficiency and defence.

Taxes

There are no further tax increases. However, the chancellor stressed the importance of detecting fraudulent behaviour, and highlighted the use of new technology to help HMRC crack down on tax avoidance. This could raise £1bn to the treasury.

Welfare cuts

The aim of benefit changes is to save £4.8bn by 2029-30. The health element of universal credit will be frozen for existing claimants until 2029-30 and reduced to £50 for new claimants in 2026-27, and subsequently frozen.

Personal Independence Payments (PIPs) will be reviewed and the government will introduce an additional eligibility requirement for the daily living element of the benefit.

£1bn has been allocated to employment support to help people back into work, plus £400m for jobcentres.

Spending

Defence spending is to rise to 2.5% by April 2027, funded by international aid cuts. The scrapping of NHS England will pass on savings for patient care.

£3.25bn is being invested in a new “transformation fund” to bring down the cost of running government. The first allocation from the fund is in AI tools to drive modernisation. Initial projects will look at the probation service and the foster care system.

The government is allocating £2 billion towards affordable housing next year. House building is predicted to hit a 40 year high, with 305,000 houses built a year, reaching a total of 1.3 million over the next five years.

To deliver this plan and to tackle trades skill shortages, the government is also allocating £600 million to train the next generation of construction workers in the UK. This will include creating new technical excellence colleges.

Inflation and growth forecasts

Inflation fell in February and is expected to average 3.2% this year before falling “rapidly”, in line with the Bank of England’s 2% target from 2027 onwards.

Growth measures include the third runway at Heathrow, planning and pension reform, and deregulation.

Ends.