Marriage allowance – is it worth it?
"Two million couples lose £662 windfall by failing to claim marriage tax break", The Telegraph newspaper reported last week. Families are missing out to the collective tune of £1.3bn, according to HMRC.
“The take-up of the new allowance is shockingly low. Even in its third year of operation, around two million couples who could benefit from the marriage allowance are not doing so. When family finances are so tight, I would encourage every married couple to check whether they might be eligible, including for the past two years, as they could qualify for a useful lump sum as well as a reduction in their ongoing tax bill,” Royal London insurance director Steve Webb was quoted.
Is this the disaster it sounds though? As the vast majority of people who read the Panthera blogs are self-employed directors, is this something you should jump at? Or is it time you re-arranged your tax affairs to give yourself every possible advantage.
Tory Wagg, Panthera director, explains…
“There’s two types of marriage allowance”
“If you’re married or you’re in a civil partnership, you can claim either the Married Couple’s Allowance or the Marriage Allowance.
“You’re only eligible for the Married Couple’s Allowance if you or your partner was born before 6th April 1935. The Married Couple’s Allowance reduces your HMRC bill by between £326 and £844.50 a year.
“What about if you were born after that date? Then, it’s Marriage Allowance you need to apply for.
“The Marriage Allowance gives you the option to transfer £1,150 of your personal allowance to your other half. That’s only if you earn less than £11,500 and you partner earns more, limited to £45,000 per annum (or £43,000 a year in Scotland).”
“If you want to apply for Marriage Allowance, it’s easy to do so.” (Editor - just click here).
“Don’t be so quick though. There’s more out there for you. Lots more.”
“£230 is not a lot of money. It’s not hot tub in the garden money. It’s barely paddling pool for the little ones money. It’s OK but it’s not great.
“If you have a limited company and your other half is NOT a shareholder but plays an active role in the business, as soon as you’ve finished reading this article, please call the Panthera team because there are some very strong arguments for you to restructure your affairs.
“The good news is that, if you do restructure, the cost is minimal and the tax savings over the year could mount to more than £16,100.”
“When both of you are shareholders and employees/directors, the big things get doubled.”
“If your limited company has you and your other half are shareholders and directors/employees of the company, this is what you get:
“• £11,500 personal tax allowance and
• £5,000 dividend tax allowance every year.
“That means you can legitimately bring into your household £33,000 worth of income with no income tax, no dividend tax, and only a tiny bit of National Insurance Employees’ Contribution
“If there’s one than more of you in the business too, you can claim the Employment Allowance.
“The Employment Allowance offers your business savings of up to £3,000 a year in secondary Class 1 National Insurance on your payroll.
“If Employment Allowance is available to you, it’s best to pay yourself right up to the £11,500 personal allowance limit. You’ll personally pay £400.32 in employee’s National Insurance. Because you’re paying it to yourself as salary, you can deduct it and the subsequent National Insurance Employer’s Contribution reducing your firm’s profitability by £633.84 meaning lower corporation tax.
“Better still, assuming you haven’t used up your Employment Allowance only anything else, National Insurance Employer’s Contributions would be paid for by the Employment Allowance.
(Editor’s note and Panthera tip – you and your spouse or civil partner do actually have to be working for the business in some capacity. If HMRC rule that you’re not, your personal and corporate taxes will likely be reassessed and you could end up with a large bill)
“If the Employment Allowance is not available for you, it’ll be better and less expensive pay yourself in dividends and use up any remaining allowance, paying yourself a salary of £8,164. This is because the 19% corporation tax you pay on your profits is less costly than paying employers’ and employees’ National Insurance (12% + 13.8%).”
(Editor’s note and Panthera tip – the Employment Allowance is not available to companies with only one member of staff)
Get in touch and let’s bring your tax down
We’re Panthera accountants and our core reason for being is to save our clients as much tax and hassle as possible.
If you’d like to speak with us about some of the issues raised in this piece surrounding making your spouse or civil partner a shareholder and employee/director, please get in touch with the team on 01235 768 561 or email email@example.com.