With much fanfare, the personal allowance from 6 April 2013 was increased to £9,440. This means for the average employee, they will pay 0% tax on earnings up to £9,440
However, if you are a director of a limited company, this figure doesn’t mean much since the optimal way to pay yourself as a company director (for the year ended 5 April 2014) is:
Salary £7,696
Dividends (net) £30,379
Total £38,075
If you pay this every year, you will pay no income tax (as long as you don’t have earnings from other sources).
You may notice that this is a lower amount than last year and you would be correct. Since with one hand they have upped the 0% band, with the other hand they have increased the higher rate band (the band where you pay 25% tax on your dividends).
So be careful when you are paying yourself from your limited company that you don’t go over this figure.
If you can take out more, make sure it is planned correctly so you don’t pay the income tax.
