Ltd company tax calcs are making my head hurt

[Langkawi]

Hi All,

I'm new here so go easy please. I have read many, many posts on here but my head is hurting from trying to work it out so I figured I'd register and see if someone can explain it.

I am working as a contractor and it seems that Limited Co is the way to go. My IR35 situation is grey (probably gonna get SJD to check out my contract) but lets proceed on the basis of outwith IR35.

My gross earnings are a modest 30K a year.

My legit expenses are likely to be between 3 to 4K per year.

I beleive that if I pay myself a salary of about 10K then I'll pay about £1,400 in tax & NI on that.

Does that mean that the balance from 30K gross - (10K salary & 4K expenses) of 16K would be liable for Corporate Tax at 22%.

Also, how does the 10% Tax credit on Divs come into this.

Would anyone be kind enough to show me how to calculate how much I would receive after tax if I was to pay out the remaining 16K in divs?

Many Thanks
Al

[PAG]

Hi All,


Does that mean that the balance from 30K gross - (10K salary & 4K expenses) of 16K would be liable for Corporate Tax at 22%.

Also, how does the 10% Tax credit on Divs come into this.

Would anyone be kind enough to show me how to calculate how much I would receive after tax if I was to pay out the remaining 16K in divs?

Many Thanks
Al

Corporation tax is 19%.

16k will be your company profit (with your assumption above).

then you pay CT 19%
16,000 * 0.19 = £3040 is your tax.

16,000 - 3040 = 12960 is what you can pay yourself as dividend.

From what I have read in forum, you are now taxed 10% on this dividen but because it falls below high earning (£32,300), you get a credit of 10% for the devidends.

As a result both cancels each other out. so no more tax to pay.

HTH.

[Nixon Williams]

Hi All,

I'm new here so go easy please. I have read many, many posts on here but my head is hurting from trying to work it out so I figured I'd register and see if someone can explain it.

I am working as a contractor and it seems that Limited Co is the way to go. My IR35 situation is grey (probably gonna get SJD to check out my contract) but lets proceed on the basis of outwith IR35.

My gross earnings are a modest 30K a year.

My legit expenses are likely to be between 3 to 4K per year.

I beleive that if I pay myself a salary of about 10K then I'll pay about £1,400 in tax & NI on that.

Does that mean that the balance from 30K gross - (10K salary & 4K expenses) of 16K would be liable for Corporate Tax at 22%.

Also, how does the 10% Tax credit on Divs come into this.

Would anyone be kind enough to show me how to calculate how much I would receive after tax if I was to pay out the remaining 16K in divs?

Many Thanks
Al

If the gross turnover was £30K you can boost this with the VAT Flat Rate scheme, worth an extra £1020 in year 1.

However with a profit of £16K the corporation tax would be 19% of this ie £3040, leaving £12960 after tax. This can be paid as a dividend and in your case no more tax would be due as the total income is less than £38,335 (06/07).

Dvidends are paid net of a 10% notional tax credit so a £900 dividend is £1000 gross.

If you exceed the HR threshold then the extra tax on the dividends is 22.5% (32.55 less the 10% tax credit) of the gross amount in excess of £38335.

I hope this explains.

Alan

[Langkawi]

If the gross turnover was £30K you can boost this with the VAT Flat Rate scheme, worth an extra £1020 in year 1.

However with a profit of £16K the corporation tax would be 19% of this ie £3040, leaving £12960 after tax. This can be paid as a dividend and in your case no more tax would be due as the total income is less than £38,335 (06/07).

Dvidends are paid net of a 10% notional tax credit so a £900 dividend is £1000 gross.

Thanks everyone. Sorry if I am being dim but this notional dividend isnt sinking in.

If i distribute the £12,960 as divs does that mean i get £11664, £12960 or £14256 after tax?

Thanks
Alan

[Nixon Williams]

The dividends are declared net so you would get £12960.

The notional tax is was devised to confuse tax payers! Try this....

Dividends are paid by a company to its shareholders as a distribution or share of the profits. Dividends are always declared and paid net of tax at a rate of 10%.

This 10% tax credit is not actually paid by the shareholder or the company – it is treated by the Inland Revenue as a deemed payment of tax.

Provided that the recipient of the dividend is not a higher rate tax payer then no further tax will be due on the dividend. The dividend received would be treated as tax paid.

Higher rate tax payers will be liable for an additional charge on any dividends that exceed the higher rate threshold.

Example
Net Dividend £800.00 90%
Tax Credit £89.00 10%
Gross Dividend £889.00 100%

Basic rate and non-taxpayers will receive £800 with tax fully paid – there is no further liability.

Higher Rate Taxpayers will be liable for additional tax as follows:
Gross Dividend £889.00
Tax @ 32.5% £289.00
Less Tax Credit £ 89.00
Net Additional Tax Due £200.00 (=25% of net dividend)
Net Dividend after tax £600.00 (=75% of net dividend)

I hope this helps!

Alan

[maxima]

or get your girlfriend pregnant twice and go on benefits. 30k you can realistically get doing nothing. AND! help birth rate!

[Crossroads]

or get your girlfriend pregnant twice and go on benefits. 30k you can realistically get doing nothing. AND! help birth rate!

And may those who do rot in hell...