Basics please help a newbie

**l35kee** · 23 February 2018, 13:31

No expert.. Musings below:

Corp tax is paid before any dividends. You also haven't accounted for any expenses whatsoever that will reduce your corp tax. i.e. your expenses may come out at like £25k over 12 months

So thats £25k + £8k before corp tax, then another £5k/£2k before dividend tax.

£44k salary takes home about £33k. You've made more than that before taking any taxable dividends.

Plus you've got additional retained funds in your company, for things like pensions. You've only limited how much you take out, the company has made more profit than that.

It varies, but atm I've taken home between 80-85% of my day rate. i.e. 15-20% tax on a much higher income than someone on a permie £44k a year. Permies taking home the same amount as me are paying over 40% tax compared to my 15-20%.

**WTFH** · 23 February 2018, 13:45

Originally posted by Goodbuddha View Post

Ok, so I'm trying to get my head around how contracting is better for tax but I think I may have confused myself figures might not be infinitley accurate..

Contract is 375 per day
So after 11 months roughly 82500

If I take my tax free personal allowance
Min salary 8500
Dividend 5000

Leaves 69k
Corporation tax has to be paid on all that as thats a profit 19%

If I then take out 32k dividends to top up tax-free amount but keep below 45 to avoid higher tax I have to pay another 7.5% on that?

So I've paid 26.5% on a 44k salary???
19% on the profit 7.5% on the dividends

A basic rate taxpayer earning 45k only pays 20%

Seriously confused.

Have you an accountant at the minute?

A few things:
1. Tax free dividends are dropping to £2,000 next year
2. You're mixing up pre-tax and post-tax.
3. You're quoting %, not actual figures.

A person on £45k a year will pay £11,119 in tax/NICs from that and take home £33,881.

The next bit is BOFP:
A company director going for £8,500 salary plus £36,500 dividends would pay £2,177 tax/NICs and take home £42,822
The Ltd's profits are £82,500 - £8,500 = £74k, which would be £14.8k CT, so after paying that you would still have £22.7k left in the company.

In other words, you're £9k better off personally and you've got £22.7k left in the company, compared to someone on £45k a year.
...but if you just want to play a % game and get the figures wrong, then no, you're probably not better off

**Eirikur** · 23 February 2018, 13:50

Corporation tax is before dividend. What you missed out on your calculations are travel expenses (mileage, hotels, etc) which you can claim back from your ltd company and other expenses such as computer, printer, postage meals etc. If you go on the standard VAT rate (wich you should do if you expect a lot of expenses, else go flat VAT rate) you can also claim back VAT on all your expenses.
Also you can put money in a pension pot paid directly from your ltd company and no corporation tax has to be paid over that as well

On the other hand there are costs which you don't have as a permie such as accountant and insurances

Also read the first timers link on the right of this page ---->

**Goodbuddha** · 23 February 2018, 14:01

Originally posted by WTFH View Post

The next bit is BOFP:
A company director going for £8,500 salary plus £36,500 dividends would pay £2,177 tax/NICs and take home £42,822

That's where in confused, you say £2177 in tax..but as I pay corp tax before any dividends I've actually paid a lot more than that.

I have just got a new accountant as I found my current ones were charging me £220 per month for not very good service.

Thank you for the reply so so far

**stek** · 23 February 2018, 14:06

And you're also assuming a full year in contract......

**l35kee** · 23 February 2018, 14:10

Originally posted by Goodbuddha View Post

That's where in confused, you say £2177 in tax..but as I pay corp tax before any dividends I've actually paid a lot more than that.

I have just got a new accountant as I found my current ones were charging me £220 per month for not very good service.

Thank you for the reply so so far

You haven't accounted for expenses. Money coming out of the business that not only is tax free, actually reduces the tax you pay.

**malvolio** · 23 February 2018, 14:13

Originally posted by Goodbuddha View Post

That's where in confused, you say £2177 in tax..but as I pay corp tax before any dividends I've actually paid a lot more than that.

I have just got a new accountant as I found my current ones were charging me £220 per month for not very good service.

Thank you for the reply so so far

Fatal mistake #1. DO NOT confuse YouCo money and personal money. Ever.

So work out the company money including what you pay yourself as salary then work out your own taxes.

HTH. But get an accountant.

**northernladuk** · 23 February 2018, 14:14

Ohh, trying to sort your accounts based on guesstimates and could be's on an anonymous forum. What could go wrong!

**WTFH** · 23 February 2018, 14:23

Originally posted by Goodbuddha View Post

That's where in confused, you say £2177 in tax..but as I pay corp tax before any dividends I've actually paid a lot more than that.

Yes, corporation tax comes out of the company. Personal tax is what you pay on your income. You (personally) pay £2177 out of the £45k.
Your company pays £14.8k on its profits. (Based on £82.5k turnover)

You need to split personal figures and company figures. You personally do not pay corporation tax on anything. You company pays it on profits.

If you want to change the figures totally, if your company earned £45k (not £82.5k) then:
£8.5k salary leaves £36.5k
Corporation Tax on £36.5k = £7.3k which leave £29.2k for dividends
Your total take-home after tax £36,069, so you are over £2k better off than a permie on £45k.

Basics please help a newbie