If you are a tax resident in England and Northern Ireland you pay Income Tax at the following rates on your taxable income (i.e. your income above the Personal Allowance):
For 2023/24, there is no difference between the Welsh rates of tax and the main UK rates of tax above.
For Scottish taxpayers, the rates of tax on their taxable income for 2023/24 are:
There are separate rates of Income Tax for Dividends.
From 6 April 2026 MTD applies to individuals who are self-employed or who have income from property.
As part of this process, relevant individuals will need to:
Keep records digitally and report income online using MTD compliant software.
Submit quarterly MTD submissions.
Report income on a tax year basis [6 April – 5 April], regardless of what accounting period is currently being used.
plan for the introduction of MTD.
revisit planning for the timing of capital expenditure; and
may need to consider whether it is appropriate to change their accounting period to align to MTD reporting.
A change of accounting year end can have implications for tax purposes, therefore this needs to be carefully considered.
Inevitably there will be costs and resource implications associated with MTD compliance, therefore this requires careful, advanced planning.
Every UK resident taxpayer is entitled to a tax-free Personal Allowance which is £12,570 for 2023/24. Your Personal Allowance reduces (down to a minimum of £0) when your income exceeds the current limit of £100,000.
You lose £1 of the allowance for every £2 of income over that limit. For example, if your taxable income is £125,140, your Personal Allowance is reduced by £12,570 (i.e. your Personal Allowance would become £0). This means that if your income falls between £100,001 and £125,140 you have an effective rate of tax rate of 1½ times your usual rate of tax (within that banding you are effectively paying 50.625% tax on dividends, or 60% tax on other income).
You will have no Personal Allowance where your income exceeds £125,140.
Changes from 6 April 2024 | Personal AllowanceThe personal allowance has been frozen at £12,570
Non-UK residents are also entitled to a UK personal allowance if they:A. hold a British passport, B. are a citizen of an European Economic Area country (including countries in the EU as well as Iceland, Liechtenstein and Norway),C. have worked for the UK government during the tax year, or D. are eligible under a double tax agreement.
Tax Tip | Spend to save taxIf your income falls above one of the thresholds, you might want to consider reducing your tax liability through tax-efficient spending. There are several ways you can do this such as: making pension contributions; tax-efficient investments; or Gift Aid charity donations.
Tax Tip | Personal Allowance transferWhere your spouse or civil partner does not use all of their Personal Allowance, consider jointly electing to transfer an element to you (if you are a basic rate taxpayer) to reduce your family tax burden.
Tax Tip | Alter your income profileWhere possible, try to ensure that you generate sufficient income to fully utilise the Personal Allowance and basic rate band. This is not always possible, but potentially can be done through careful planning of the timing of: dividends from a private company; distributions from a trust; or income drawdowns from an investment bond.
Tax Tip | Avoiding the High Income Child Benefit ChargeIf you have children, it may be possible to rearrange income (as between spouses or civil partners) so that both incomes remain below the £50,000 threshold for the High Income Child Benefit Charge.
The first £1,000 of dividends are tax-free regardless of which tax rate band into which you fall. This relief is in addition to your Personal Allowance.
Dividends can be used as part of the reward strategy for a private limited company.
Tax Tip | Utilising the dividend allowanceDirector-shareholders should always consider declaring a dividend of at least £1,000 per shareholder in each tax year to utilise the dividend allowance, provided their company has distributable profits available.
Tax Tip | Reviewing dividend levelsDividends can be taxed at a lower rate than other income. Director- shareholders can often influence the level of salary and dividends when deciding how they are rewarded by their company as a director and as a shareholder. With dividends now suffering Income Tax having already been paid out of profits that will have suffered Corporation Tax at 19%-25%, and given that the main rate of Class 1 National Insurance for employees is reducing from 12% to 10% on 6 January 2024, it may be time to revisit this dynamic.
Tax Tip | Family involvementIf you are a director-shareholder, you may wish to consider who else in your family could have shares, in order to make use of their allowances. This planning might also involve creating jointly-owned shares. Income from jointly owned assets is generally shared equally for tax purposes, regardless of whether the asset is owned in unequal shares. It is possible to submit an election to H M Revenue and Customs to split the income proportionally in line with the ownership of the asset.
Tax Tip | Research and DevelopmentDividends are not taken into account when considering the costs incurred in respect of director-shareholders who are involved in Research and Development activities, therefore consideration should be given to the level of salary
Changes from 6 April 2024 | Dividend Allowance
The Dividend Allowance is reducing from £1,000 to £500 as from 6 April 2024.
If you pay tax at the basic rate of tax you have a PSA of £1,000, which means that the first £1,000 of savings income is tax-free.
If you pay tax at the higher rate the PSA is £500. If you pay tax at the additional rate of tax you are not given a PSA.
Tax Tip | Changing your income profileWhilst many director-shareholders find themselves ineligible to benefit from the starting rate for savings (due to the level of their other non-savings income) for those that are on low incomes, it is often possible to review the way that you are rewarded. Please refer to the section on dividends.
The first £5,000 of savings income is taxed at the starting rate for savings, which is 0%. However, this is only available if you have low income, and is restricted where non-savings income exceeds the personal allowance (£12,570 for 2023/24).
