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New Scottish tax rates for 2018-19 and how they affect tax planning for Scottish owner managed companies

The Scottish parliament has approved a progressive income tax system with new rates which means tax payers now 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 basic rate (and then higher rate) .

For owner managed limited companies, who can decide on the level of salary and dividend to pay themselves, tax planning has just been made a bit more 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?

For sole director companies who do not have a spouse, the most tax efficient strategy overall (taking into account income tax, national insurance and corporation tax) for 2018-19 is to pay £11,850 salary and then withdraw any further cash from the company via dividend.

For companies owned jointly by husband and wife, 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, the factors highlighted above need to be considered for each specific director and their spouse and this may have an influence on how to set salary and dividend payments for the company for 2018-19.

A summary of relevant tax rates for Scottish registered companies in 2018-19 is shown below:

Personal allowance 11,850
Scottish basic rate threshold (for earned income not savings income) 31,580
UK-wide basic rate threshold (for savings income e.g. dividends) 34,500
Class 1 National Insurance rate – employee 12%
Class 1 & 4 National Insurance primary and secondary threshold (no National Insurance payable below this threshold) £8,424
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 £2,000) 19%
Scottish basic tax rate (earnings from £2,001 to £12,150) 20%
Scottish intermediate tax rate (earnings from £12,151 to £31,580) 21%
Scottish higher tax rate (earnings from £31,581 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.