Reply to: Employees and Employers NI Contributions

[Sockpuppet]

Anything that cannot be depreciated fully within the first year.

[Maxamus]

What type of capital items ?

[Sockpuppet]

If you buy any capital items then it is possible for remaining cash to be less than profit meaning more must be kept back for corp tax.

[Maxamus]

It isn't rocket science for your accountant to work out the profit each month, mine does (nixon's) and provided you have profit you can take dividends whenever you wish.

Working out profit isnt hard. Its what the business is left with after it has taken expenses and salary out i would imagine.

If then you pay corp tax out of that profit then there shouldnt be a problem taking the rest as a dividend......
After all it is my hard earned money!

All im interested in is making as much money as i can as unlike alot of other contractors here, this is my first gig and im only 26 so i need to buy a descent car, a house and pay my stupid student loan off and therefore need all the money i can.

[Waldorf]

It isn't rocket science for your accountant to work out the profit each month, mine does (nixon's) and provided you have profit you can take dividends whenever you wish.

[Sockpuppet]

And why is taking a dividend on a monthly basis not the wisest thing to do?
Im sure it follows the same protocal as if it were done annually. Its one and the same.

It can look like a salary and how can you prove that the business is going to make enough profit to cover the divis. Some people think that this is an IR35 pointer where as every 3,6,12 months isn't.

[Maxamus]

If you are trying to work out the largest dividend you can take, then there is much more to consider than just money invoiced, salary, expenses and PAYE. What about other company expenses, or VAT, or the fact that draining the company on a monthly basis isn't the wisest thing to do (tax-wise).

"Expenses" that i put in covers all of the companies expenses in that month and then so on for next month.

I dont take VAT into account on a monthly basis, im going to do it quarterly. Every quarter when i sum all of the VAT recieved up and then do the calc for flat rate, i will know how much i owe the tax man, then my share will be added into the cpmpany profit of that month which it then will be subject to tax. I can do it monthly but i'd rather do it quarterly so simplify things.

And why is taking a dividend on a monthly basis not the wisest thing to do?
Im sure it follows the same protocal as if it were done annually. Its one and the same.

[Crossroads]

I appreciate i should be asking these sort of legal things to the accountant but i cant wait till tomorrow, would rather know now so i can get my books in order. Thanks

There's a lot of questions and a lot of answers in there - some of which cannot be answered without more information. What is it you are trying to achieve before tomorrow morning?

If you are trying to work out the largest dividend you can take, then there is much more to consider than just money invoiced, salary, expenses and PAYE. What about other company expenses, or VAT, or the fact that draining the company on a monthly basis isn't the wisest thing to do (tax-wise).

[Nixon Williams]

Thanks Allan

Now it makes sense. The reason why they have not charged me any employees and employers NI is because it was my first pay slip so im thinking when my salary has exceeded 5,035 that is when i will start getting charged. Correct?

Yes, the limit is £5035 but if you have only started with your own Ltd co. part way through the tax year the £5035 will be less.

Alan

[Maxamus]

And another thing:
Which of the following is right:

Dividend Calculation

Total Income = £6,000.00
Expenses = £887.98
Salary = £763.99
PAYE Tax = £69.30

BALANCE = £4,278.73
Corp Tax @ 19% = £812.96

Divident = £3,465.77

or

Total Income = £6,000.00
Expenses = £887.98
Salary = £763.99

BALANCE = £4,348.03
Corp Tax @ 19% = £826.13

Divident = £3,521.90

In simple terms, do you take into account the PAYE Tax (and Eees and Eers NI) in the divi calculation or not?


I appreciate i should be asking these sort of legal things to the accountant but i cant wait till tomorrow, would rather know now so i can get my books in order. Thanks

[ASB]

when i was wonder Giant i think i had earnt something like £3,800. Thats the figure quoted from what i can remember on my P45. Cant check as my file is in my drawer at work

As a director your don't *have* to pay NI on a cumulative basis. some may find it more convenient to use the "exact percentage" - see the NI tables. Ths can have the effect of "smoothing". Ultimately you will pay the same.

As an approx example salary 10k,

Cumulative: pay nothing for 6 months. Pay approx 90 ee, 100 er each month for remaining 6 months.

Exact: pay approx 45 ee, 50 er each month.

Given you say you have earned 3800 elsewhere in the tax year - and presumably that is on the P45 you gave the accountant it won't make too much difference. As mentioned the method of calculation only affect when it is paid not how much.

[Maxamus]

Yes and No.

Have you earnt anything this tax year already?

when i was under Giant i think i had earnt something like £3,800. Thats the figure quoted from what i can remember on my P45. Cant check as my file is in my drawer at work

[Sockpuppet]

Yes and No.

Have you earnt anything this tax year already?

[Maxamus]

Thanks Allan

Now it makes sense. The reason why they have not charged me any employees and employers NI is because it was my first pay slip so im thinking when my salary has exceeded 5,035 that is when i will start getting charged. Correct?

[Nixon Williams]

For 2005/06 Employer NIC is charged at 12.8% on any salary paid over £5035.

Directors' pay their NIC slighty differently to normal employees and pay it on a cumulative basis.

So, no NIC is paid until the cumulative salary exceeds £5035 (pro-rata if appointed during the year).

NIC is then paid at 11% by the director on all salary until the higher limit (£33,540) is reached when it drops to 1%

I hope this clears this up!

Alan