Tax Question

zygurat789

Here is the calculatyion for the maximum amount of national insurance contributions payable by an individual

http://www.hmrc.gov.uk/manuals/nimmanual/nim01163.htm

purdyoaten

zygurat789 wrote: »

Here is the calculatyion for the maximum amount of national insurance contributions payable by an individual

Yes - your link some ten years old and before the 2% additional rate came into play but it does highlight the horrendous calculation that the interaction of Class 1, 2 and 4 National Insurance is.

However, these days there is no maximum with the advent of the 2% rate and the calculation is even more horrendous. In fact, there is technically no such thing as deferment when one must pay at least 2% NIC on everything. What one can do is defer the amount payable at the highest rate.

If you add www. to the following link you will find some further guidance - I cannot post links yet.


macintyrehudson.co.uk/tax/paye-and-ni/dont-pay-too-much-national-insurance

MF2015

Thanks for the replies everyone.

I think I've cracked it.

I'm going to do the following as a sole trader, pay in to a SIPP up to the maximum (£40000 I believe for 2014/15)

Then pay my wife £149 per week for her office duties, classed as an expense, and take a small wage with anything else left over after.

Based on previous experience 50k pa is possible so should see my right to start with.

If anyone has a better idea I would love to hear, otherwise I'm going to do some reading up on how SIPP's work. I specifically like the idea of the following investments taken from an allowable list;

"Exotic" assets like vintage cars, wine, stamps, and art

I'll pass on the stamps and art though!

chrismac1

I'd have thought the following setup would be better:

1. Limited company.
2. You and your wife as directors.
3. You get say 500 Ordinary voting shares.
4. She gets 500 A Ordinary voting shares.
5. You declare dividends on the A Ordinary shares up to £1 below the point where she becomes a higher rate taxpayer.
6. The company can make unlimited pension contributions for either of you and get full corporation tax relief for these.

The main advantage over the sole trader setup is that you only pay personal taxes when dividends are declared. Declare one on 5 April 2014 and that's in the 13/14 tax year. Do it on 6 April 14 and now it's the 14/15 tax year.

This sort of setup is ideal for people who plan to retire in the forseeable future because it can lead to cash building up in the company bank account "trapped" there unless you accept a higher rate tax hit on the dividends. People retiring in the next 4 to 5 years can happily take all of this cash out over say 3 tax years with no higher rate tax to pay on their dividends unless their pension income is very high.

[Deleted User]

A semi (sort of, barely) related question that I've been wondering about:

- Person earns £90,000 per year PAYE primarily from bonuses (too much to contribute to a pension to keep themselves out of 40%)
- Person performs work on the side as self employed, earning £30,000 per year
- Person has no need to access the £30,000 self employed income while in 40% tax bracket
- Person expects long term that their PAYE income may be reduced (due to removal of bonuses) to be below the 40% tax threshold

In that situation would it be tax efficient to:

- Set up limited company
- Perform the self employed work as company with all money going into the company and have no self employment income
- Pay any tax on company profits due
- Leave money in company until PAYE income is below the 40% tax bracket
- Withdraw money from company as dividends

Would that be a good solution for someone that doesn't expect to be into the higher tax bracket long term?

chrismac1

In the exact example you've given I would say that the limited company route is essential more or less. Between £100,000 and 118,880 the marginal rate of tax is 60% - for every extra £100 of income there is £60 of extra income tax. This is because although the headline rate is 40%, for every £2 of income you lose £1 of the tax-free personal allowance.

This means that people in the earnings bracket from £100k to £135k or so are pretty much nuts if they just act like sitting ducks and take on the chin what the idiot politicians are dishing out to them.

Pensions, limited company setups, Venture Capital investments, Uncle Tom Cobbley and all are worthy of consideration.

pjclar02

chrismac1 wrote: »

6. The company can make unlimited pension contributions for either of you and get full corporation tax relief for these.
.

Hmm - I'm not sure that this is correct I'm afraid.

chrismac1

The HMRC text on this is in
RPSM05400020.

"Tax relief on employer contributions to a registered pension scheme is given by allowing contributions to be deducted as an expense in computing the profits of a trade, profession or investment business, and so reducing the amount of an employer’s taxable profit.

In the case of a trade or profession, employer contributions will be deductible as an expense provided that they are incurred wholly and exclusively for the purposes of the employer’s trade or profession ICTA\S74(1)(a) – corporation tax and ITTOIA\S34 - income tax. Where the employer is a company with investment business the employer contributions will be deductible as an expense of management ICTA\S75."


Scottish Life site spells it out better:

• Employer contributions are not restricted, however they must satisfy the 'wholly & exclusively' requirement to receive tax relief.
• Employer contributions count towards the annual allowance.
• There are a number of scenarios when additional implications need to be considered.

Hopefully this enables pjclar02 to make his or her mind up that it is indeed correct. It must be done properly, once done properly HMRC challenges are a rare bird.

chrismac1

On 23rd January I have two separate client meetings with my preferred supplier of registered company pension schemes. Clue - they have the initials MW and are headquartered in Leicester. So if it turns out that we've got corporation tax relief all wrong please tell us pronto and we can cancel the meetings!

Regshoe

chrismac1 wrote: »

On 23rd January I have two separate client meetings with my preferred supplier of registered company pension schemes. Clue - they have the initials MW and are headquartered in Leicester. So if it turns out that we've got corporation tax relief all wrong please tell us pronto and we can cancel the meetings!

I think they are probably referring to the £50k/£40k annual allowance for the individual, rather than the corporate position.

I won't claim to fully understand the workings of the cap myself - I was at a CPD event where it was demonstrated at length and after 5 minutes of Pension Input Periods etc. my brain started to leak out of my ear and I came to the conclusion that who ever designed the system should be lined up against a wall and shot.