Tax Question

MF2015

If someone could help with a quick tax question that would be great.

I'm a higher rate tax payer and will be starting a limited company along side my current position.

Myself and my wife will be directors.

How much tax would I pay on profits, I'm guessing 40% on any pay but what about dividends and corporation tax, how can I extract the cash in the most tax efficient way?

My wife has a little left before she is in the higher tax bracket and will make use of this but not sure if I need to pay us a wage, we dont need it, or if it can all be in dividends and the liabilities on this.

I did something similar before having our first child a few years ago but as a sole trader but I've been told it could be better to trade as a LTD company.

Many thanks.

pjclar02

Hello there


You do not need to pay yourself a salary, and from what you are saying this is unlikely to be tax efficient.


Assuming the company profits will be less than £300,000, then it will pay 20% tax on its profits. The post tax profits can be paid to you as a dividend, which would be tax free until it pushes you into the higher rate tax bracket and then taxable at 25% thereafter.


Hope this helps

MF2015

pjclar02 wrote: »

Hello there


You do not need to pay yourself a salary, and from what you are saying this is unlikely to be tax efficient.


Assuming the company profits will be less than £300,000, then it will pay 20% tax on its profits. The post tax profits can be paid to you as a dividend, which would be tax free until it pushes you into the higher rate tax bracket and then taxable at 25% thereafter.


Hope this helps

Thanks for the reply.

So overall I would pay 20% corporation tax plus 25% on dividends as a LTD, do I pay NI on this?

As a sole trader I would pay 40% plus NI, how much is this?

Accounts would be more expensive LTD but have a degree of protection in this form.

Looks like both routs are about even but a lot more responsibility LTD.

zygurat789

MF2015 wrote: »

Thanks for the reply.

So overall I would pay 20% corporation tax plus 25% on dividends as a LTD, do I pay NI on this?

As a sole trader I would pay 40% plus NI, how much is this?

Accounts would be more expensive LTD but have a degree of protection in this form.

Looks like both routs are about even but a lot more responsibility LTD.

There is no NI on dividends.
As a sole trader you wold pay 40% tax and NI:-
9% on profits from £7956 - £41865
2% thereafter

MF2015

zygurat789 wrote: »

There is no NI on dividends.
As a sole trader you wold pay 40% tax and NI:-
9% on profits from £7956 - £41865
2% thereafter

But no NI up to £7956 even though I'm a higher rate tax payer from another income?

Thanks for the help.

zygurat789

MF2015 wrote: »

But no NI up to £7956 even though I'm a higher rate tax payer from another income?

Thanks for the help.

NO one is tax, one is national insurance

MF2015

I mean no 9% NI until £7956 profit, even though I'm already paying NI on my other income.

Thanks.

zygurat789

MF2015 wrote: »

I mean no 9% NI until £7956 profit, even though I'm already paying NI on my other income.

Thanks.

That would be correct even though fishes swim.
National insurance is non-cumulative for each and every employment.
Your wife could take a salary from the LTD to take her total uncome
to the 40% tax level and pay no ni on it. You and your wife could take a salary of up to £147pw and not pay NI on it

purdyoaten

MF2015 wrote: »

I mean no 9% NI until £7956 profit, even though I'm already paying NI on my other income.

Thanks.

Given that you are a higher rate taxpayer at presumably what is a main PAYE source, it is likely that you could claim deferment against any self employment profits of Class 2 and Class 4 NIC.

This would mean that you would pay no NI on the first £7956 of profits and 2% on everything above that. Regardless, you never pay any NIC on the first £7956 of self-employed profits.

MF2015

purdyoaten wrote: »

Given that you are a higher rate taxpayer at presumably what is a main PAYE source, it is likely that you could claim deferment against any self employment profits of Class 2 and Class 4 NIC.

This would mean that you would pay no NI on the first £7956 of profits and 2% on everything above that. Regardless, you never pay any NIC on the first £7956 of self-employed profits.

If I can claim deferment then sole trader looks like possibly the better option. My only other concern is my wife.

She will be carrying out the office work, how do I tackle this as a sole trader?

purdyoaten

MF2015 wrote: »

If I can claim deferment then sole trader looks like possibly the better option. My only other concern is my wife.

She will be carrying out the office work, how do I tackle this as a sole trader?

Look at the thread 'SE Tax Help - Dates Due' which is on the same page at the moment where this was covered yesterday.

When I am a big boy, I will be able to post links.