Millward, May & Co - Wokingham Accountants
Wokingham Accountants

Company Tax Planning

Company Tax Planning

We show you how it's possible to reduce your personal tax liability when trading through a company.

You need to understand that your company's tax and your personal tax are totally separate. Assuming no other income, your personal tax is based on how much you've paid yourself from the company in salary and dividends between 6 April and 5 April every year. Your company's corporation tax is based on your company's own specific year end that usually does differ from the personal tax year. For example, a company started in December will have an accounting period from 1 January to 31 December.


Company Corporation Tax

Company Profit and Loss:

  • Add: £100,000 Sales
  • Less: £11,850 Wages
  • Less: £5,000 Pension
  • Less: £1,650 Accountancy
  • Less: £4,500 Travel
  • Less: £2,000 Computer Equipment
  • Profit: £75,000
  • Less: £13,300 Corporation Tax @ 19%
  • Reserves: £61,700

If you have a sole trade or are employed, you pay tax on the £75,000 profit in the year that you earn the money.

However, as a limited company you can pay the corporation tax rate of 19% on your profits and keep the money within the company indefinitely without paying any additional personal tax. This means you can tax plan, as you only pay personal tax when you pay out the company reserves as a dividend.


Personal Tax

Tax Bands 2018/19:

  • 0 - 11,850 Personal Allowance = 0%
  • 11,850 - 46,350 Basic Rate
  • 46,350 - 150,000 = Higher Rate
  • Over 150,000 = Additional Rate

Dividend Tax Rates 2018/19:

  • Tax Free £2,000 = 0%
  • Basic Rate Tax = 7.5%
  • Higher Rate Tax = 32.5%
  • Additional rate Tax = 38.1%

In the 'company corporation tax' example above let's assume that I pay the company reserves all out in dividends meaning that I'd taken £11,850 in salary and £61,700 in dividends. I would pay the following in personal tax:

  • Personal Allowance = £11,850 x 0%
  • Tax Free Dividend = £2,000 x 0%
  • Basic Rate = £32,500 x 7.5% = £2,438
  • Higher Rate = £27,200 x 32.5 = £8,840
  • Total Personal Tax = £11,278

Example 1


Alternatively, if out of the £61,700 in attributable dividends I only took £34,500 and I left £27,200 in the company my personal taxes would be as follows:

  • Personal Allowance = £11,850 x 0%
  • Tax Free Dividend = £2,000 x 0%
  • Basic Rate = £32,500 x 7.5% = £2,438
  • Total Personal Tax = £2,438

I could then potentially take the £27,200 out in a later year at a lower personal tax rate.

Example 2