Make It Count - Bains MiC Autumn 2018 Bains_web | Page 3

Call: 07983 938173 Email: [email protected] www.bains-fm.co.uk What’s the optimal salary level to extract cash from a limited company? The right wage To arrive at the optimal salary level, firstly assume that a director’s personal allowance is available (£11,850 for 2018/19) without it being used up for pensions or other employment/rental/investment income. Next, we consider if the employment allowance is available. This is the allowance that will reduce your employer’s secondary class 1 National Insurance (NI) each time you run your payroll, until the £3,000 is used up or the tax year ends. If the sole employee of the company is also a director, the employment allowance is not available. Therefore, it would make most sense to pay a salary somewhere between the lower earnings limit and the primary and secondary National Insurance Contributions (NIC) threshold (between £6,032 and £8,424 for 2018/19). In this case, there will be no NI or PAYE to pay, but there will be notional NIC at zero rate that contribute towards state pension and benefits. If the sole employee decides to pay themselves a salary of more than £8,424 then the NIC cost of 12% for the employee and 13.8% for the employer would outweigh any corporation tax saving (corporation tax is 19% for 2018/19). If the employment allowance is available or the employee is under 21, a higher salary can be drawn as the employment allowance absorbs the NI cost – a salary of £11,850 (the 2018-19 personal allowance) in this case. The director will have to pay some employee NI, but this is more than offset by the corporation tax saving on salary paid above the primary threshold. Where the director’s salary exceeds the personal allowance of £11,850 for 2018/19, the excess salary will attract tax at 20% and employee’s NI of 12%. Totalling 32% tax, this is greater than the 19% corporation tax saving on that extra salary paid. DEAL OR NO DEAL? We look at what a ‘no deal’ Brexit scenario could mean for us There are mutual interests for the UK and EU in negotiating a win-win deal for Brexit, but the government has also thought about what will happen in the case of a ‘no deal’ outcome in March 2019. One area for consideration is the implications of VAT rules for goods traded between the UK and EU member states, which has been covered in the UK Government’s paper VAT for businesses if there’s no Brexit deal. Overall, a no deal scenario would mean that existing VAT simplification measures between the UK and EU would come to an end. Supplies of goods to and from the EU would be treated as imports and exports, with different reporting, payment and refund implications. The UK VAT system would largely emulate existing procedures with non-EU countries. Imports For UK businesses importing goods from the EU, a no deal scenario would mean that rules for imports from non-EU countries would apply. The government would introduce what they call ‘postponed accounting’ for goods imported into the EU, meaning that UK VAT registered businesses can account for import VAT on their VAT returns, rather than paying when the goods reach the UK border. Another area affected by a no deal scenario is parcels sent by overseas businesses. Low Value Consignment Relief will be abolished for all parcels arriving from EU and non-EU member states. Parcels will be subject to import VAT on entering the UK, unless they are zero-rated goods. Exports When UK businesses export goods to the EU, businesses will continue to be allowed to zero rate sales of goods – EC sales lists will no longer be required. Any exports to private individuals will be zero rated. For services supplied into the EU, insurance and financial services rules may change in terms of input tax deduction rules, but HMRC have yet to clarify. For businesses supplying digital services to the EU, the place of supply will remain the same as currently, where the customer resides. VAT refund systems to claim refunds of VAT from EU member states will still exist, but will follow the processes for non-EU businesses. Some EU member states may be slow at issuing refunds to non-EU member states and therefore UK businesses need to be aware of this impact on their cashflow. Making Tax Digital The UK formally leaves the EU the month before HMRC introduces its Making Tax Digital programme in April 2019, which will require UK businesses to submit their VAT returns online. Businesses should continue to prepare for this change regardless of the outcomes of EU negotiations.