Accountant Problems

[cojak]

We are now off-topic from the original post guys.

[Wanderer]

You would still be able to claim Corporation tax relief, so it is still worth doing.

Agree with Prozak and ASB. You're going to have to explain that one to us lay people....

[Wanderer]

But I would have had to pay income tax & NI & employers NI as I had already earned over 7K & would have to do payroll based on figs from my P45? so I would have paid more tax - income tax & NI.

Absolutely, but that's not clear from your original post where you said:

The last couple of years I've just taken all dividends!

which lead people to (not unreasonably) presume that you had no other income (including salary from another job) and your only income was dividends. Earning a salary with PAYE while running a LTD company does complicate things somewhat. It's probably worth getting an accountant to review all your personal circumstances and advise you what to do. We can only give general advice and that's going to be wrong if we don't have the full details which you couldn't be expected to discuss here...

[prozak]

We are now off-topic from the original post guys.

Thread evolution Cojak.

We are complex folks here

[cojak]

Thread evolution Cojak.

We are complex folks here

Fine,

You deal with the threads, I'll deal with the trolls.

[d000hg]

Fine,

You deal with the threads, I'll deal with the trolls.

That'd be nice. Half the threads here seem to be people insulting each other and chatting about random stuff this week.

[psychocandy]

Whoa!

you're gonna have to justify that one Alan.

Anything Kitty now earns is taxed at 20% personal (assuming she is still under the higher tax rate) - negating the CT benefit, essentially just passing the tax to her personal tax band.

Plus she pays 12% NI.
Plus there is 13.8% Employers NI.

Plus every pound she earns means 25% to be paid on the dividends she has already taken (she has already said she is over the higher tax rate due to dividends i think)


Or am I wrong?

By all means please prove me wrong. I am no expert.

Yeh. Agree with Prozak here.

[Clare@InTouch]

Yeh. Agree with Prozak here.

NI is calculated on a weekly basis per employment, it's not like tax which works on a coding basis. Therefore you can earn £7,000 in different employments and not pay NI or Er NI on either. You'd pay tax, but that would be offset by CT. If you're looking backwards, then you could have saved CT at 21% whilst paying income tax at 20%. 1% saving in tax on £7k.

[Nixon Williams]

Whoa!

you're gonna have to justify that one Alan.

Anything Kitty now earns is taxed at 20% personal (assuming she is still under the higher tax rate) - negating the CT benefit, essentially just passing the tax to her personal tax band.

Plus she pays 12% NI.
Plus there is 13.8% Employers NI.

Plus every pound she earns means 25% to be paid on the dividends she has already taken (she has already said she is over the higher tax rate due to dividends i think)


Or am I wrong?

By all means please prove me wrong. I am no expert.

Firstly, no NIC (either employees or employers) would be due on an annual salary of £7000 - the National Insurance bands are per 'employment' not per person. So you could have five jobs, each paying a salary of £7000, giving a total income of £35,000 and you would not pay any NIC.

If the person was a higher rate taxpayer (and already used their tax allowance), then there would be no difference at all on the total tax paid, as the example below illustrates:

Fee income of £50,000 and ignore all expenses, VAT etc.

Taking a salary of £7,000 would leave profits of £43,000, meaning corporation tax of £8,600 would be due. Assuming that the remaining profit of £34,400 is paid as a dividend, this would give a total income of £41,400 (34,400 + 7,000).

From this income you would be liable for 40% tax on the salary (£2,800) and 25% tax on the dividend (£8,600), so the total tax would be £11,400.

So your net income would be £30,000 (£41,400 - £11,400).

If NO salary was taken, then the corporation tax would be £10,000 - leaving a dividend of £40,000 that could be paid, the tax on this would be £10,000, so again leaving a net income of £30,000

The arguement for a salary on this basis was marginally better when the corporation tax rate was 21%, but the effect of this is now almost gone as most companies will now be fully paying corporation tax at 20% on their profits.

However, on top on this, the extra salary will earn additional 'credits' towards the state second pension, probably not a lot but every little helps as a large supermarket states!

I hope this explains.

Alan

[jmo21]

For what it's worth, I'm also one connection away from Julie on LI, via an agent.

<creepy>very cute</creepy>