Tax Planning For Directors – Video Transcript
As the Director of your own business, you are in a position where you may, well be able to set your own pay and remuneration.
This is a nice position to be in, but alas, it is far from a simple one. There are many aspects to this which make it complicated and it is easy to end up paying more tax than is necessary, or finding it difficult to balance the needs of the company, against your personal needs, or your short-term requirements against your long-term goals.
Paying yourself could be quite a challenge.
Just to make matters worse you have to be wary that your decisions could also need to change from year to year as the tax rules might change, the rates of tax and allowances might change, and your company circumstances could change. Of course these might all occur.
When considering your pay position you need to consider two requirements: yours and the company’s.
You need to think about personal income tax, employee, and employers National Insurance and Corporation tax.
Essentially, you can extract money from your company through salary, dividends or pension contributions or a combination of each of these.
There may be other options in some cases but these are the most common methods.
The way different extraction methods are taxed varies and the situation is now complicated by slightly different tax structures between Scotland and the rest of the UK.
So there are lots of pieces of the jigsaw to put in place to get the best possible outcome.
This is all structural and mechanical and in many ways, not your priority concern, because, of course, your main concern will be running your business, making your business the best it can be and dealing with the sales, marketing, staff, suppliers, and all the other hundred and one tasks you have to deal with.
Your remuneration has to fit in with your wider business goals and needs.
This means you have to weigh up the question: How much?
As well as the related question: How?
For many directors there is a desire to make sure they pay the lowest amounts of tax legally possible.
In this respect, it is perfectly possible for two directors in a broadly similar position, to have the same total gross income, but different tax payable because of the way the remuneration is structured.
All of the complicating factors touched on earlier, plus your personal and business goals come into play when thinking through how to pay yourself and of course this could change regularly, so what was best a few years ago might not be today or tomorrow.
You need to work out the balance of considerations touched upon and effectively find the best solution taking them all into account.
This is why working with us as financial experts can make such a positive difference and help you piece all this together.