PAYROLL - 04.01.2018

2018/19 payroll changes

Tax code changes. The personal allowance has increased. For 2018/19, it will rise by £350 to £11,850 from 6 April 2018. Therefore, unless you receive an amended tax code notification, all “L” suffix codes will need to increase by 35 for 2018/19, e.g. code 1150L becomes 1185L.

NI changes. The employment allowance, which relieves employers of the first £3,000 of employers’ NI, is still available for 2018/19. The NI thresholds have increased so both employees’ and employers’ Class 1 NI will be due on earnings over £162 per week (£8,424 per year). Tip. If an employee is under 21, check that you are using the NI category letter M instead of A as although they still have to pay employees’ NI on earnings over £162 per week, your company won’t have to pay 13.8% employers’ NI on earnings between £162 and £892 per week. This also applies to apprentices under 25 when the NI code should be H.

Optimum salaries and dividends. If the directors are also shareholders and receive remuneration in the form of a minimum salary and dividends, what’s their optimum salary/dividend package for 2018/19? Assuming: (1) they don’t have an employment contract so the national minimum wage doesn’t apply; (2) your annual employers’ NI bill is already more than £3,000, so you will have fully utilised the employment allowance; and (3) they have not yet accrued maximum entitlement to the state pension, then the sweet spot is to go to the NI threshold but no higher. So for 2018/19, this would be a monthly gross salary of £702 which takes them up to the NI threshold. With regards to dividends, if the director shareholders want to go up to the basic rate limit (£34,500 for 2017/18) but no further, assuming they have no other income, they can have dividends of £3,426 that can be taken tax free in the personal allowance (£11,850 - (£702 x 12)). The next £2,000 (down from £5,000 in 2017/18) of dividends will also be tax free as they are within the dividend allowance. This leaves the balance of dividends of £32,500 (£34,500 - £2,000) which they will have to pay personal tax on at 7.5% (£2,437.50) due by 31 January 2020.