Originally posted by ladymuck
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For your pleasure: sole trader vs company tax calcs (Google Sheets)
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Originally posted by WordIsBond View PostSince you pay no NI on the extra £4K with the higher salary, for you it is a wash.Comment
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Originally posted by TheCyclingProgrammer View PostFWIW, you don't need to pay up to the personal allowance to gain a credit for state pension purposes - you simply need to pay above the lower earnings limit.Comment
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Originally posted by WordIsBond View PostNot once the higher threshold for employee NI kicks in.
You have no income tax on that extra £4K in salary, just as you had no dividend tax on it when it was dividends. Since you pay no NI on the extra £4K with the higher salary, for you it is a wash.
YourCo pays more NI at 13.8, but saves 19% on (salary + ERNI). So your company saves net about 8%. If you have two employees and claim the employment allowance, it's even better to go to the higher salary.
This is moot if the NI threshold increase ends up not happening, of course.
Am I right in thinking that based on the CURRENT rates, my spreadsheet is correct (i.e. it shows the most tax efficient method) if we change the 17% CT rate to 19%?Comment
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Originally posted by Kugel View PostHow exactly you avoid paying NI on extra £4K?Comment
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Originally posted by Kugel View PostHow exactly you avoid paying NI on extra £4K?Comment
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Originally posted by proudfeet View PostCan you break down how you worked out the 19% that you save?
So the CT savings is 19% * (salary + NI). Plugging in the numbers, every pound of salary over the NI threshold saves 19% * (1 + 0.138) in CT, or £0.216.
So, for every pound over the NI threshold, your company will save about 8% in tax (netting out the CT and NI). For converting income below the personal allowance from dividends to salary, there is no income tax difference. So going from an 8.5K salary to 12.5K costs nothing in income tax.
For salary above the NI threshold but below the personal NI threshold, then, there's no cost to you personally and savings to your company of 8% by reducing your CT. For salary above the personal NI threshold (9.5K) but below the personal allowance (12.5K), the cost to you personally is 12% (NI) and the savings to your company is 8%, which makes it not worth it.
So the most tax efficient salary for LtdCo contractors will be 9.5K. If you have more than one employee and are using the employment allowance, it will be 12.5K.Comment
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