Reply to: Net 'Income' as Percentage of Turnover

[malvolio]

Given your income tax liability was only £17k, it would seem that you are either income shifting to your spouse

Oi!!

It's not "Income Shifting", which is something HMRC dreamed up one evening to frighten people with, it's profit sharing. The proposal is for a Family Business Tax.

[dude69]

Rough figures - My Ltd Co's turnover for last year was £147K of which my Corporation Tax liability is £25K and my Income Tax liability is £17K. That means I 'keep' £105K of the £147K which is over 71%. Does this seem reasonable or do the Tax figures seem high in relation to turnover?

Did you distribute 100% of profits as a dividend?

How much is your salary?

I assume £147k is after VAT has been taken off.

You have paid £25k CT, so made £125k profit. That seems quite a low profit relative to turnover. What are your expenses? It's hard to run up more than £5k in expenses from computers/travel. Therefore you probably have ~£17k of expenses from salaries and pensions. Is that correct?

Disregarding that, how much dividend and income did YOU actually receive in your personal bank account?

On £5k salary, £30k dividend (treated as £33k gross). This is all tax-paid.

But you made £125k profit. So there is £95k left over. The tax liability on dividends above Higher Rate limit is 25% of received (net) amount. So there would definitely be 25% * £95k = £23,750 income tax to pay.

Given your income tax liability was only £17k, it would seem that you are either income shifting to your spouse (who could receive £30k dividend, obviating £7,500 of tax), or you have got things wrong, an d some of the money is still left in your company, and your tax liability is bigger than you think, because there is sitll money in the company which is CT-paid, but you would be liable to higher rate tax on.

Which one is it?

How much dividend did you receive?

[ChimpMaster]

Tim, there are a number of sectors that will pay £89 or more... like SAP, Security, specialist C++ in banks etc.

Not that I'm in any of these.

[tim123]

I posted in a hurry on Friday and took Mal assertion that you weren't going to be into the higher rate at face value.

But of course you are.

ISTM that there is no way that you can cut up say, 130K after expenses, between 2 people without about 30K of it being subject to HRT.

So there's the missing 5K tax. 20% of 30K is 6K which you will have to pay when you do your SA returns.

tim

[Bumfluff]

My turn over (excluding VAT) and is close to KG, based on an £15k sal and the rest divs, no income shifting, no massive expenses say £3.5 a year, in the higher band and I come in about 64% and thats accountant figures

[malvolio]

Your calculation is based on working 220 days per year which means I'd be taking the equivalent of over 8 weeks' holiday and even allowing for public holidays that's too many, plus an 8 hour day would be more realistic.

His calculation is based on reality. If you're working all hours God sent and not taking holiday, of course is skews the estimates, but it doesn't mean he's wrong. The point is we don't have enough data to work with so we're making informed guesses.

[KennyG]

Your calculation is based on working 220 days per year which means I'd be taking the equivalent of over 8 weeks' holiday and even allowing for public holidays that's too many, plus an 8 hour day would be more realistic.

[NotAllThere]

I'm not sure where you get £89 per hour from. I have a good day rate but the hourly equivalent is a bit less than that.

£147000 / 220 / 7.5 = £89 per hour.

[KennyG]

I didn't ask if it was right or wrong, I asked if the net amount over turnover seemed reasonable.

[Ardesco]

Who is more likely to be correct?

1. A bunch of armchair warriors posting on a forums, who don't know any details of your finances.
2. Your CIMA qualified accountant who does this for a living and has access to all of your finances.

Answers on a postcard please

[KennyG]

Thanks for the replies.

I do have someone I could in theory income share with - otherwise known as a wife.

I'm not sure where you get £89 per hour from. I have a good day rate but the hourly equivalent is a bit less than that.

And I never said I didn't have an Accountant - I do, just trying to get some other opinions on the subject.

[tim123]

Back to the question:

IR35calc shows that for 147K turnover (requiring an hourly rate of 89ph) the tax deducted would be 32% or 47K, so you're about 5K under.

Of course, this could be because you have a different expense profile than the calculation assumes or because you have left some money in the company, or paid it into a pension?

Oh, these figures are for the current tax year, whilst most people are still working out last year's.

(And what the **** do you have to do to get 89ph?)

More pertinently, why is someone who turns-over 147K skimping on accountants fees? The bill for my services is in the post!

tim

[tim123]

No. Got an accountant?

We need to understand how you worked the CT figure (it should be 20% of net profit, i.e. income after expenses which would be £22k to give your value, and that seems a little high but could be right. Tax is more complex since it depends what you pay yourself.

That said, somewhere around 70% net return on turnover is right if you haven't gone into higher rate, which on those numbers seems unlikely

And where did he say that he had someone to income share with?

tim

[malvolio]

Rough figures - My Ltd Co's turnover for last year was £147K of which my Corporation Tax liability is £25K and my Income Tax liability is £17K. That means I 'keep' £105K of the £147K which is over 71%. Does this seem reasonable or do the Tax figures seem high in relation to turnover?

No. Got an accountant?

We need to understand how you worked the CT figure (it should be 20% of net profit, i.e. income after expenses which would be £22k to give your value, and that seems a little high but could be right. Tax is more complex since it depends what you pay yourself.

That said, somewhere around 70% net return on turnover is right if you haven't gone into higher rate, which on those numbers seems unlikely

[moorfield]

How much income are you shifting to achieve that ?