Indie Dev’ Guide 2: Personal tax

Introduction

As a director of a UK Limited company you are legally required to register for self-assessment and submit personal tax returns annually from the tax year in which you become a director.

In addition, if you are a shareholder of a company and receive dividend income in excess of your personal allowance and dividend allowance, you will also be required to submit personal tax returns.

The personal tax return incorporates all your personal taxable income (e.g. salary and dividends) in the tax year in order to compute your tax liability for the year.

Important dates

The tax year begins on 6 April and finishes on 5 April.

If you submit a paper personal tax return it is due for submission to HM Revenue & Customs by 31 October following the end of the tax year.

The majority now submit online and if you do so, the deadline for submission is extended to the following 31 January.

Your tax liability for the previous tax year ended 5 April is due for payment by 31 January (the same date for submitting your return online).

If your liability for the previous tax year was more than £1,000, HM Revenue & Customs will automatically assume your liability will be the same for the next tax year. In this case they will request that you make two payments on account towards your liability for the next year. The payments on account are 50% each of the previous year’s liability. The first payment is due on 31 January (along with the tax due for the previous year). The second payment is due on the following 31 July.

The two payments are offset against your actual tax liability for the year. You can claim to reduce these payments on account, if you has good reason to believe your liability will be lower the following year and can compute a reliable estimate of your liability. If you do reduce them and the tax is higher, you may be liable to interest on the underpayment of your payments on account.

Tax

In a typical director/shareholder company the director will be remunerated by way of a tax efficient mixture of salary and dividends.

As a result of changes to the threshold at which employers National Insurance applies from April 2025, more careful consideration is required as to the level of the salary a director is paid. The new rules mean that a director earning more than £5,000 will incur 15% Employers National Insurance (ERs NI) on any earnings above this.

One option is to keep salary at £5,000 and pay no ERs NI. However, one of the added benefits of paying a small salary up to £9,100 in 2024/25 was that this also entitled the director to a credit towards their state pension for the tax year (without incurring any National Insurance liabilities). The salary threshold to obtain the state pension annual credit for 2025/26 is £6,500 and therefore a salary at £5,000 would not achieve this. A decision needs to be made as to whether a salary of at the least £6,500 should be paid to ensure the credit is received, despite incurring ERS NI.

Many who still have a number of years remaining to ensure a full state pension will determine that the ERS NI on a higher salary is overall worth it. Generally, we see many individuals increasing salary to £12,570 with the notable benefit that the salary and ERS NI are tax deductible for the company. However, each case must be assessed on its own merit.

In 2025/26, assuming no other sources of taxable income and that the director has received a salary of less than £12,570, the director could receive dividends to top up their income and utilise their remaining income tax.

The director could then receive a further £500 dividends, which are covered by their dividend allowance.

This equates to a total income of £13,070 tax free.

Any further dividend income at the basic rate of tax (between £13,071 and £50,270) would be taxed at 8.75%. This means for every £1,000 of dividends paid, the personal tax liability would be £87.50.

The tax rate on dividends received above £50,270 increases to 33.75%. This means for every £1,000 of dividends paid, the personal tax liability would be £337.50.

The director may wish to consider alternative methods of remuneration, especially if they are considering Video Games or R&D Tax Relief claims, where only salary qualifies as expenditure and dividends paid do not.

Full list of Guides

• Guide 9: Understanding your Accounts
• Guide 10: British Film Institute (BFI) certification
• Guide 11: Business Expenses
• Guide 12: Withholding Tax on overseas income
• Guide 13: Benefits of an Audit
• Guide 14: Video Games Expenditure Credit
• Guide 15: Taxation of Non-Cash Benefits for Employees and Directors in the Gaming Sector
• Guide 16: Management Accounts and Forecasting in the Gaming Sector
• Guide 17: Bookkeeping Software for the Gaming Sector 

Want to learn more?

Get in touch with our in house expert Luke Thomas to see how we can help.