HOW DO I CALCULATE MY TAX BILL? 

A Guide for UK Directors of a Limited Company

If you’re a director of a limited company in the UK who pays yourself via a combination of salary and dividends, this is for you! A simple guide to your tax obligations and how to plan ahead …

 

Understanding Your Income

As a director of a limited company, you are most likely to receive your income in two ways: as a director’s salary and as dividends on your shareholding;

• Salary: Your salary is subject to Income Tax (this is determined a lot by your tax code) and National Insurance Contributions (NICs). The rates and thresholds for these taxes can change from year-to-year, so it’s important to stay updated
• Dividends: Dividends are subject to Dividend Tax. In the current tax year (6 April 2024 to 5 April 2025), there is a reduced £500 dividend allowance – you pay no tax on this initial amount. Tax on any dividends taken over this will be taxed depending on your Income Tax Band. Dividend income is treated as the top band of income. Dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate)

Keep Records

Maintaining accurate financial records is essential for calculating your tax. You should record your financial transactions, including income and expenses, and ensure that all the necessary paperwork is in order for your business.

Estimate Your Taxable Income

To determine how much you should save for your tax bill, you need to estimate your taxable income. This includes your salary, dividends, and any other sources of income, such as rental income or interest on savings. It’s important to consider your personal circumstances and any available tax allowances, deductions, or reliefs that may reduce your taxable income.

Calculate Your Tax Liability

With your estimated taxable income at the ready, you can calculate your tax liability. Make sure you’re using the correct tax rates and thresholds for Income Tax and Dividend Tax. Keep in mind that tax calculations can be quite complex, so it’s always worth consulting with your accountant.

Allow for Payments on Account

If your tax liability is over £1,000, you will need to make payments on account to HMRC. These are advance payments towards your next tax bill, and they are typically due in two equal instalments in January and July.

Review

Tax regulations, your income, and your financial situation often change from year to year. It’s crucial to review your tax planning regularly and adjust your savings strategy.

 

Getting Advice From Moorgate

The best way to get peace of mind is to seek trusted, professional advice. If your financial situation is particularly complex or if you’re unsure about your tax planning, we are here to help. We offer expert guidance tailored to your specific circumstances from experienced tax professionals. Plus payroll services to keep you compliant throughout the year.

If you have any questions regarding your tax liability or what you should be saving for your tax bill, please contact us:

Moorgate Accountancy Ltd

01883 730044

oxted@moorgates.co.uk

www.moorgates.co.uk