Possibly stupid question about Ltd Co. income after tax but I've got to ask anyway

[ChimpMaster]

Rounding numbers and excluding VAT and possibly numerous other factors so as to simplify this example:-

Revenue = £100,000
Salary = £15,000
Other expenses = £5000

Profit = £80000

After paying Corp. Tax@ 21% you are left with = £63,200

Net Dividend up to £43,876 (below 40% tax) less £15,000 salary already paid = £28876

Left in the company = £34324

Take all £34,324 dividend and pay 32.5% tax so you get = £25,743

So your income for the year is £54619 in dividends and approx £12,500 net salary = £67119


So a 67% return. Does that sound about right?

I just had to get that out of my system while I was reviewing my CT Return!

[Craig@Clarity]

Rounding numbers and excluding VAT and possibly numerous other factors so as to simplify this example:-

Revenue = £100,000
Salary = £15,000
Other expenses = £5000

Profit = £80000

After paying Corp. Tax@ 21% you are left with = £63,200

Net Dividend up to £43,876 (below 40% tax) less £15,000 salary already paid = £28876

Left in the company = £34324

Take all £34,324 dividend and pay 32.5% tax so you get = £25,743

So your income for the year is £54619 in dividends and approx £12,500 net salary = £67119


So a 67% return. Does that sound about right?

I just had to get that out of my system while I was reviewing my CT Return!

Higher rate threshold is £43,875 gross income so £43,875 less £15k salary leaves £28,875 = £25,987.50 net dividend (dividends paid from the company are net dividends)

Left in the company is £37212.50. If you take all this as a net dividend, you keep £27,909 putting aside £9,303 for higher rate tax. (25% tax on net dividend in HR)

[MrRobin]

Isn't it 22.5% tax on HR?

[Craig@Clarity]

Isn't it 22.5% tax on HR?

Technically, it is 32.5% of the gross dividend amount but with 10% tax credit, the actual amount due is 22.5% of the gross dividend. This is the same as 25% of the net dividend amount.

[Nixon Williams]

Rounding numbers and excluding VAT and possibly numerous other factors so as to simplify this example:-

Revenue = £100,000
Salary = £15,000
Other expenses = £5000

Profit = £80000

After paying Corp. Tax@ 21% you are left with = £63,200

Net Dividend up to £43,876 (below 40% tax) less £15,000 salary already paid = £28876

Left in the company = £34324

Take all £34,324 dividend and pay 32.5% tax so you get = £25,743

So your income for the year is £54619 in dividends and approx £12,500 net salary = £67119


So a 67% return. Does that sound about right?

I just had to get that out of my system while I was reviewing my CT Return!

Craig has already corrected some of the figures but to get back to you question on the return of 67%:

1. You have not mentioned Flat Rate VAT, assuming you are in IT and this was your first year you would save £3400

2. You have not detailed the expenses but I would guess some is mileage, lets say 50% so this will add to the net income you have, lets say £2500

3. You have not mentioned the employer's NIC (paid at 12.8% on salary over £5715) but I assume this is included in the £15,000 leaving a gross salary of £13,946

4. So you turnover including the FR Vat saving would be £103,400 less the salary and expenses of £20,000 leaves a profit of £83,400

5. Corporation tax would be 21% (20% from 01/04/11) being £17,514

6. This leaves profit available for dividends of £65,886

7. The net income from the salary assuming a 647L tax code would be £11,546

8. So your income would be:

Dividends £65,886
Mileage £ 2,500
Net salary £11,546
less HR tax on divs (£9,737)

Total net income £70,195 or 70.2% of your turnover.

This could be increased further, some ideas would be:

1. Take a reduced salary of £5,715 rather than £13,946 - this would increase your net income by £1,522 or 1.5%

2. Claim expenses such a mobile phone, home office etc, all legitimate expenses you could claim and add to your net pay.

3. Maybe split the shareholding with your spouse? This would depend on their individual tax position.

Based on the above and some other solutions, the net could be increased easily to say 75%+

I hope this helps.

Alan

[Fred Bloggs]

Thank you Alan, a good and clear explanation.

[ChimpMaster]

Thanks Craig, Alan, and all. I was going through my CT600 calculation and just wondering what my return would be and was confusing myself senseless with the numbers (my actual figures are obviously different to those in the example!).

[7of9]

Expenses are difficult to estimate. If your expenses are high you can obviously have better take home rate. But it has to be legitimate and you need keep the receipts . My accountant told me I can claim lunch as expenses. I am not so sure.

[SueEllen]

Expenses are difficult to estimate. If your expenses are high you can obviously have better take home rate. But it has to be legitimate and you need keep the recipes. My accountant told me I can claim lunch as expenses. I am not so sure.

HMRC have some "very nice" leaflets you can read on what you can and can't claim as expenses -

Off my head google for "HMRC 490" and "HMRC 480" You will find they are very clear and well written

Once you have digested them without falling asleep (or losing the will to live) use the search function on this board to read a discussion you understand on the various issues.

BTW you shouldn't claim for lunch unless you are working aboard as everyone has to eat. It's been covered before.

[RichardCranium]

BTW you shouldn't claim for lunch unless you are working aboard as everyone has to eat. It's been covered before.

And I will suspect it will be covered again; I have claimed lunch every working day for the entire time I've been contracting. The only thing that has changed is that since I went brolly, I have to keep the receipts instead of charging a flat rate for Luncheon Vouchers.