Tax free words in block next to £2000

Don’t miss out on £2000 tax free from your company!

Kirsty Young Limited Company, News, Tax

Fancy £2k tax free from your own business? Of course you do!

If you are a limited company owner (i.e. a shareholder), it is quite likely you will be paying yourself dividends at points during the tax year.  That is, of course, presuming you have made some profits – dividends can only be paid if you show a profit.

If you are in the early stages of your business, or just don’t often take funds from the business, it’s key to review whether you could pay yourself a dividend. You must do before 5th April 2021 (the end of the personal tax year), to avoid missing out on using any tax free allowance you have.

If your knowledge of dividends is a bit rusty, here’s a reminder of how dividends work.


Plan head to save tax

Advanced, regular planning can save you tax when using dividends. For example, at the time of writing, you have a dividend allowance of £2,000.  This means any dividends paid, up to £2,000, are personal tax-free. Above £2000, your dividends will incur tax.

Make sure the dividend you have paid yourself is declared before 5th April 2021 (presuming you haven’t had any already this tax year). This will ensure you do not miss out on this valuable allowance. It really is ‘use it or lose it’!


Every shareholder has this allowance

If your spouse or partner is a shareholder, this dividend allowance should also be reviewed against their available allowances. It may be beneficial to declare some dividend to them if possible.

You should track your current year income from all sources carefully to make sure this business dividend method will be worth it, or speak to your accountant on this.

There is a slight catch in that the £2000 tax-free allowance applies to all dividends, not just those from your own company. For example, if you have other dividends that have been paid from (say) stock market investments, this will eat into your £2000 limit.

You don’t actually have to physically pay the cash to yourself before 5th April 2021, if you have the appropriate paperwork in place. Check out our blog to read more on how to time dividends well to save tax.


Your Action List for Company Dividends

Before the 5th of April (end of tax year):

  • Review your accounts: do you have enough profits to pay a dividend?
  • Review your and any other shareholders income: do you have other dividend income that could affect the £2000 allowance?

If you decide based on the above to make use of a dividend:

  • Put the paperwork in place and consider paying the dividend or adding the value to your Director’s Loan Account (where applicable) for payment at a later date.


Need help with company dividends?

If you do not get this looked at regularly by your current accountant, or don’t have an accountant, give us a call. At Heelan Associates, we can guide you through how to set up company dividends and then making the most of your £2000 tax-free allowance every year.