Personal tax or corporation?

alm721

Can anyone help? My hubby is a sole trader and I do all his paperwork/wages etc. Currently I don't take any wage out of the business as I had a full time job which would was near the 40% bracket however, I am now going very partime following maternity and wondered whether it would be worth paying myself for doing the paperwork in order to reduce corporation tax? Is this worth doing? I realsie there will be NI to pay (mine and employers) as well as tax so would it be worth it? Also is corporation tax a fixed amount regardless of profit or is it tiered like paye? Sorry for all the questions
Hope someone can help.
Thanks

Slinky

Corporation tax is paid by limited companies, not sole traders.

Pennywise

As a sole trader, your hubbie pays income tax and class 4 NIC based on the business profits (not the drawings he takes out).

If he registers as an employer and pays you a wage, it is a deduction from his profits, so he pays less tax and class 4 NIC. There wouldn't be any employees nor employers NIC if he paid you less than £5,400 per year, i.e. £450 per month. You would personally pay 20% basic rate tax on this wage.

By paying such a wage, hubbie saves 8% national insurance. You just have to make sure that you work enough hours to justify your pay. It is not really worth paying more than £5,400 as you'll both be paying NICs on the excess over £5,400.

Hope that helps.

alm721

Many thanks for both replies, didn't realise sole traders don't pay corporation tax. I am so daft sometimes. Also thanks for the reply re nic etc. Very helpful and defo somthing to think about.
Regards

Bismarck

alm721 wrote: »

Many thanks for both replies, didn't realise sole traders don't pay corporation tax. I am so daft sometimes. Also thanks for the reply re nic etc. Very helpful and defo somthing to think about.
Regards

Not daft...sometimes I think the rules are there to be complicated! Or justified and argued over by politicians..

queen_of_leon

don't forget to claim his capital allowances also...on company vehicles, plant machinery and other fixed assets. it can drastically cut his tax bill.