Is there a good summary you would recommend for accountancy-challenged developers? Should we get any leftovers in business bank account out through more dividends now and accrue higher personal income tax or wait and see?
There isn't much you can do really. The overall increase in annual tax is not going to be that big. If my calculations are correct, if you want to pay yourself ~100k per year you'll end up paying 2-3% more tax.
I have a popular one, and they are rubbish. I'm on my first contract and I have no idea what I'm doing tax-wise. After £10.6k in salary they say one could take £28.5k in dividends before higher tax kicks in. So what do people do with the rest? Accept hight tax or leave it in business bank account and wait for next tax year?
Not all accountants know a lot about tax. Tax lawyers will be better at reducing your tax rate, though they can be expensive (and unnecessary for basic stuff).
The general 'rule' is you tend to only take out as much as you need. It's usually smart to always use the lower rate tax bands and then decide what to do with the excess that is left in the company.
However, since they're increasing the tax rate, now might be good time to take out a higher dividend, since you'll pay more to take it out next year. If (tax now < tax later) -> take it out. :-) Unless you're wealthy enough to never have to declare dividends again, you'll want to take out more this year.
Also, don't forget to expense as much as you legally can. That's all tax deductible BEFORE corporate tax.
What can you do with the rest?
a. Invest it (compound interest: shares/bonds/property/etc)
b. Give yourself a loan from the company. You'll have to pay interest, but it's a relatively low rate (3.25% p/a I believe).
Wealthy people tend to be (relatively) poor in their personal name, but own a lot of stuff through companies - e.g. planes, boats, property.
Imagine you can sell small business accountancy services for £300 a year; and you can hire an accountant for £40,000 salary for a 2,000 hour year. Add on an extra £10,000 for tax, insurance, office space, parking, advertising, and things like that.
If you do an average of 6 hours of work for each client each year, your accountant can serve 333 customers and bring in £100000 a year, making £50,000 in profit.
On the other hand if you automate heavily and get rid of all the customers who have complex needs or who are calling you a lot, so you do an average of 15 minutes work for each client each year, the same accountant can serve 8,000 customers and bring in £2,400,000 a year making £2,350,000 in profit.
I know how I'd run my accountancy business, if I had one!
I just take what I want and pay higher tax as necessary. You still end up paying less than the average worker anyway since there are no NICs on the higher level of dividends. Other than that, I reinvest it into the business, but I can't be arsed with pensions.
