Do I really pay less tax as a limited company

[ItRYmyBEst]

I have a limited company and expect to pay 20% corporation tax on my profits. However from this after tax profits I plan to keep paying my self dividends (20% I think?), but I know the company needs to pay tax on dividends, so am I now paying 40% tax?

[Scruff]

Are you Tulip at Maths?

[SueEllen]

1. Go to CUK Navigation - over there on the right --->
2. Start at "First Timers" and read all the pages.
3. Then next read "IR35/S660/BN66"
4. Repeat until you have read all the sections.
5. Next go to google and put in "sjd accountancy" Then click on the "Contractors Guide" and start reading.
6. Once you have done that find yourself an accountant who is use to dealing with contractors.

[Jessica@WhiteFieldTax]

Simplifying a complex set of calculations, generally you don't save tax with a company - Income Tax and Corporation Tax broadly balance out. You do gain through lower NI and FRS vat, subject to the rules for each.

[jamesbrown]

Non sequitur. You and your company are not the same entities for legal or tax purposes.

[TheCyclingProgrammer]

Simplifying a complex set of calculations, generally you don't save tax with a company - Income Tax and Corporation Tax broadly balance out. You do gain through lower NI and FRS vat, subject to the rules for each.

Plus the ability to build up a warchest and only pay higher rate income tax if you *need* to, whereas you have no choice if you are self-employed and earn over the threshold, which IMO is probably one of the biggest advantages overall.

[Louisa@InTouch]

The company will pay corporation tax on profits at 20%. Once corporation tax has been considered, this will leave you profits available for dividend distribution. The company does not then pay any further taxes on the dividends you take personally.

Instead, as and when you take dividends, the taxes you pay on these will depend on your other total personal income. But for a simple example for 2014/15, if you have a salary of £12,000, no other personal income from other sources, you can take dividends to the higher rate threshold of £26,878, with no taxes payable on these personally.

Once your total gross income goes over the higher rate threshold, any dividends that exceed this will have 25% personal taxes due.

In short no taxes on dividends to higher rate, compared to employed - income tax at 20% and NI. Then over the higher rate threshold dividends taxed at 25%, compared to employed - income tax at 40% and NI.

[Andrew@Wisteria]

If you are contracting via an agency then your other option is an Umbrella company, (good for short term contracts but very tax inefficient - because of the Employers and Employees NI as well as not being able to register for VAT flat rate scheme) so from that perspective, yes a Ltd is better (even often when caught by IR35)

[Forbes Young]

I have a limited company and expect to pay 20% corporation tax on my profits. However from this after tax profits I plan to keep paying my self dividends (20% I think?), but I know the company needs to pay tax on dividends, so am I now paying 40% tax?

Yes your company pays CT @ 20% on its profits. However, you only pay income tax on dividend income once your total gross income exceeds £41,865 in the current tax year. If this is exceeded then you will pay income tax @ 25% on the net excess. No national insurance (Employees or employers) is ever paid on dividend income either of course, so still far more tax effective to operate through your own ltd company outside of IR35 and take a small salary of £663 per month (where no PAYE/NI is payable), take allowable expenses such as business mileage and dividends.

[PerfectStorm]

Not to mention that the figure coming in (before tax) is quite probably a fair bit larger than you had as a permanent job. So even if it's taxed similarly, you end up with more.