Hi Jay
I have just responded to your other thread and for clarification, it might be better having the answer to that perhaps before this is answered, given the two questions appear to be interconnected.

The notional 10% rule was changed with effect from 6 April - you may have seen some press comment. Here is some info on the new tax regime to get you started www.book-keepers.org.uk/t60870081/bookkeeping-for-my-ltd-company/

Clients will often tax a mix of salary and dividends and it is dependent on their personal circumstances, other income from other sources plus a few other issues (eg  will there be any pfoits available to take divis/tax bracket etc)

Is IR35 a specific issue with your business?

-- Edited by Cheshire on Sunday 17th of April 2016 09:45:57 AM

abacus12345 wrote:

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Shareholders receive dividends. Directors don't. 

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 Excellent point Johnny.  

 

Speaking of 30 years - I've had a play with the new online digital tax area - beta version I believe - needed to file a p50, anyway - you can top up 'missing' amounts of NI online, from this new account 'thing' now...

Tut, and whilst I was calculating that out a whole conversation happened!

Hi Johnny, snap on the pensions consideration.

Hi Shamus,

I managed to find a post from you from a while back!

www.book-keepers.org.uk/t60825496/setting-up-a-ltd-company-to-save-on-tax/

I was struggling to find it but it's a great post which I can work through. What it doesn't take in to account is the fact that a partner (wife) could also be treated as a director....if this were to happen could the tax advantages to 'the couple' who own the business be significantly improved if the business is the sole source of income??

You also mention about the Directors not looking out for the best interests of the company in you previous post. I think you were getting at corporate governance and agency theory. But where the directors and the shareholder are one of the same would this not eliminate the conflict?

Your post was really detailed so I will work through it when I have some time and work through all that you have said. I guess it's important to consider at what points tax can arise for example if you draw a salary then income tax / NI is due but PCTCT reduces and dividends are paid post profit. Then off course it's the issue relating to any profit which may remain in the company at the point of disposal at some future date.

It's a really interesting topic, maybe I should tax some tax exams...eeek!

Thanks for all your help it's very much appreciated!
Jay

Jay3 wrote:

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Can anyone answer/confirm this point please?

What it doesn't take in to account is the fact that a partner (wife) could also be treated as a director....if this were to happen could the tax advantages to 'the couple' who own the business be significantly improved if the business is the sole source of income??

Many thanks,
Jay

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Hi Jay,

For this one see this current thread where this matter is being discussed in some depth from the employment allowance perspective : http://www.book-keepers.org.uk/t61852547/employment-allowance-clarification/

Jay3 wrote:

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Can anyone answer/confirm this point please?

What it doesn't take in to account is the fact that a partner (wife) could also be treated as a director....if this were to happen could the tax advantages to 'the couple' who own the business be significantly improved if the business is the sole source of income??

Many thanks,
Jay

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 If you're happy to let the wife become a 50% shareholder and assuming she has no other dividend income then there is a tax free allowance of £5000 for both spouses before dividend interest kicks in.

If dividends are likely to take a shareholder into the higher rate dividend tax, which is 32.5%, then adding a spouse means the dividend income would be shared, and again assuming no other income other than 11k salary, the spouse would be taxed (after the 5k allowance) at 7.5% on the next 27k ish of her dividend interest.

Each case is different and it is highly recommended that you seek an accountant's advice tailored to your needs.

Hi Shamus, I've been looking at your figures in the example above and I'm confused by the rates you have used for EMPE 10% and EMPR 11% in you 'Using Salary' example. It's probably me as I don't do this thing very often but the rates on the .gov site seem to suggest 2% and 13.8%?

Actually, here you go

 

 

Hi Shamus,

Thanks for this it's really helpful. Would you be able to forward me the spreadsheet so that I can play around with the figures? I would like to base it on T/O of £80k profit of £40k and then look at adding in an additional director or Employee.

Thanks,
Jay

Hi Jay
Would it not be better to have a go at creating your own? It gets the basic calculations into the brain better, so aids learning.

It would be easier if I had more time to just focus on this rather than coming back to it several days later each time. Apologies for that!

Thanks! this is such a great forum! Cheers =D

Hi Jay,

I recognise that format, lol.

Not bad formatting but just a couple of minor points more about presentation than the actual calculations as such.

You need to seperate our personal and company liability. Personal liability would be personal tax and EMPE, Company is EMPR and corporation tax. (you show that in the comparison off to the right but the Company Liability section at the bottom of the boxes seems to confuse the segregation).

The reality is that the company pays a salary of £36,133 and the tax and EMPE payable on that are the employee's responsibility even though such are paid at source by the company. The companies liability is the EMPR (and corporation tax).

I think that you understand it in principle but its just the way that its presented that could be slightly improved.

On the right hand side the PAYE figure shown is only the NI where PAYE also includes the tax so it should be (for salary, I've only looked at the salary side, I'll let you do the dividend one)

Salary £27,658
PAYE £8,475
EMPR £3,867

You could if you wish show the PAYE as Tax and EMPE seperately which can help in the management accounts.

In my example calculations I used the old £10,600 code as I was comparing dividends under the old regime but for your calculations which are based only against the new method you should be adopting the £11k tax coding which is the code live at the time of the new dividend regime.

Hope that helps,

Shaun.

Hi John,

I didn't take the second one but just glancing at it now I can tell you where the figures incorrectly come from.

The dividend figure would seem to have been reverse engineered.

If you look at the calculations off to the right the tax code salary is calculated out leaving £29,057, subtract the tax and the remainder is the figure allocated in its entirety to dividends.

The issue there is that to get Jays figures the remainder figure calculated should be the £28,245 not the 23,245 (whats happened is that £5k has been back added to the dividend available where the £28k figure is not actually the amount available for dividends). So if we replace 28,245 in the calculation with £23,245 and subtract the £5k from that then we actually get a tax figure of £1,368 on income of £33,845.

Jays driver was obviously the same turnover starting point and being left with nothing in the company rather than the income calculations being equivalents.

A quick calculation later and I get take home using salary is £27,658 and take home using dividends of £32,172 (still using the £10.6k tax code).

Do you concur with my figures John?

 

p.s. amended to add more figures to make my calculations clearer

-- Edited by Shamus on Monday 16th of May 2016 11:08:35 AM

Thanks everyone!

John, would you mind posting the spreadsheet back with your formula fixes. That would be helpful.


Thanks Shamus for your feedback, I'll have to look at everything you've mentioned one I get some more time....possibly this afternoon.

Cheers,
Jay

Shamus wrote:

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Leger wrote:

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reduce the salary to £8060 (blame Portia for that one lol)

 

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 <snip>

So, anyway, sounds as though we're both members of the same fan clubs (Portia and Joanne.... Sorry, lets stick with safe sequencing, Joanne and Portia). Do you think that there should maybe be badges and membership numbers and such like?

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 Hey now I wouldn't go that far, even though I've been kind to her in my reply to Parmi just now.  Besides shes from Basingstoke!!

She can be funny, and the £8060 replies certainly were, but I dislike her sometimes acerbic style. On the other hand she is very knowledgeable in tax matters well above my level and will give a good reply when needed.

But I'm with you regards Joanne, who is definitely No. 1   (loved your quick change of sequencing there, you nearly had to hand out a get out of jail free card )

Cheshire wrote:

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Gosh, one goes MIA for a day and they are already finding some other floosie to fill my place on here as big pixie of the year. S haun handing himself a get out of jail free card is not going to work, is it John? Needs to be greater punishment after all the cakes I've made him!!! Am absolutely appalled that he didnt 'sequence' matters in the right order by editing!!!   Im now crying in a corner!  Although the use of the word 'safe' makes me realise that a certain Mr Mod knows how lethal I can be, lol

Thank you John for your kind words, I have re-organised the membership numbers to ensure VIP members are easily recognisable  - thats  all Im saying.    Plus dropping an email to Portia to tell her to back off BKN!  

Thank you Shaun 

 

-- Edited by Cheshire on Tuesday 17th of May 2016 01:36:11 AM

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 <cough> You will notice that I wasn't easily persuaded by Shaun's attempt to replace you in pole position and that this will be remembered on the next cake run </cough>

Ssssh, don't give them any idea's Johnny!

Jay3 wrote:

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Thanks everyone!

John, would you mind posting the spreadsheet back with your formula fixes. That would be helpful.

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Sorry Jay, nearly missed this.  I've tinkered a bit more now and if you alter the salary in box D28 it will change the details on the far right as well.  I've also worked out how to change the negative figures to zero too.  Will work fine now unless any of the dividends attract the 32.5% tax rate.

Hi Guys & Gals,

Could someone take a look at my additions to the spreadsheet please and let me know your thoughts.

 

I have added an additional section for multiple directors taking Salary and Dividends in theory is what I have done correct?

Thanks,

Jay

Hi Jay

Single Director one looks great, but the two director one won't work. You've made a glaring mistake on the dividends available 

Personally I would work out the total dividends available as per the right hand side and then do separate tallies for each director.  You could do that by having extra rows in far right dividend calculation 

eg Director/Shareholder 1 -  50% Director/Shareholder 2 - 50%   then add the necessary formula to the dividend total under the salary.   This would allow you to adjust the percentage ratio on unequal shareholdings.

Can I ask what P46 and P73 figures represent please?    

Hi Jay

I see how you've done it and looks all good,

 

Hi Jay,

just wondering why you have changed from referring to everyone by there real names to referring to everyone by their user names?