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2019-20 Tax Planning for Limited Companies

The Scottish parliament now has a progressive income tax system with new rates which means tax payers need to be even more aware of how their employment and savings income will be taxed differently.

The dividend allowance  is set for the UK as a whole and has reduced to £2,000 from April 2019 which means any dividend income over £2,000 is assessed under income tax at 7.5% basic rate (and then 32.5% higher rate) .

For owner managed limited companies, who can decide on the level of salary and dividend to pay themselves, tax planning has becomemore complicated. So much for the Office of Budget Simplification!

So what needs to be considered?

How can owner managers plan the most tax efficient strategy?

Sole director companies 

Companies owned by  multiple directors

For companies owned by two or more directors, the more complex income tax system for Scotland now means tax planning must be done specific to their particular personal circumstances.

Where a company is owned and managed by more than one director, existing sources of income (e.g. rental property, investment income) need to be considered for each specific director and, if relevant, their spouse and this may have an influence on how to set salary and dividend payments for the company for 2019-20.

Basic Scenario

I have modelled a scenario for a Limited company, with both directors owning a 50% share of the company each.   Based on two different operating profit levels of £30,000 and £70,000, the optimum tax/ dividend split is to pay a £12,500 annual salary to both directors out of the Limited company and extract any further cash out of the company as dividend which will be split equally.

The UK basic rate threshold (as opposed to the Scottish threshold) of £50,000 (£37,500 + £12,500 personal allowance) will apply because dividend income is savings income.

In this scenario, £100,000 profits can be extracted out of the company at basic rate and the corporation tax liability will be reduced by £2,375 for the salary.  The National Insurance payment due will be £464 each i.e. £928 in total, payable over January and April 2020.


A summary of relevant tax rates for Scottish registered companies in 2019-20 is shown below:

Personal allowance 12,500
Scottish intermediate rate threshold (for earned income not savings income) 30,930
UK-wide basic rate threshold (for savings income e.g. dividends) 37,500
Class 1 National Insurance rate – employee 12%
Class 1 & 4 National Insurance primary and secondary threshold (no National Insurance payable below this threshold) £8,632
Dividend tax rate –basic 7.5%
Dividend tax rate –higher rate 32.5%
Dividend allowance –nil rate £2,000
Scottish starter tax rate (earnings up to £2,049) 19%
Scottish basic tax rate (earnings from £2,050 to £12,444) 20%
Scottish intermediate tax rate (earnings from £12,445 to £30,930) 21%
Scottish higher tax rate (earnings from £30,931 to £150,000) 41%
Scottish top tax rate 46%


If you would like to talk more in more depth about tax planning for your own limited company  please call or drop me an email.