Reply to: % take home pay

[planetit]

Underscore,
The composite isn’t doing anything dodgy. They don’t own any extra tax. But you might.

It doesn’t matter whether you use a composite or Ltd or are simply an employee. If you are a higher rate tax payer and you get any dividend income (maybe you own a few shares) you have some extra tax to pay.

[hattra]

>Basically, on dividends, you save the NI - you don't save on your tax bill (and the NI on income over £32760 is only 1%)

You are forgetting your Ltd's ( or composite's ) employers NI, 12% I think.

Good point - you can tell I've been out of it for a while

[Underscore2]

So

does that make compoany like Nolongerltd dodgy? They do the same thing - and surely someone who advertises like that will get caught?

[EqualOpportunities]

I'm just going to stip talking about it now.......

Underscore2 is Arthur Bostrom and I claim my £5

[rootsnall]

>Basically, on dividends, you save the NI - you don't save on your tax bill (and the NI on income over £32760 is only 1%)

You are forgetting your Ltd's ( or composite's ) employers NI, 12% I think.

[Underscore2]

composite

does the tax return. I'm just going to stip talking about it now.......will discuss with my accountant etc.

[hattra]

Underscore,

The composite is correct - THEY don't have any extra tax liability - YOU do.

If you are receiving the whole 60k divis yourself, and it's not split with a spouse or something, then you have to count all the divis as your personal income. The composite pays over 20% (IIRC) of the divis to el Gordo (£12k), before paying the difference to you (£48k).

I'm not an accountant, but I think it should work out a bit like this, assuming top rate tax starts at £32400

10K salary - pay c. £1400 NI & PAYE (assume that you pay that through monthly deductions)
next £22400 of divis - pay 20% Tax at source (deducted by the composite) - £4480
last £37600 - pay 20% Tax at source, plus 20% difference to make it up to higher rate - £15040

Total tax on the divis, £19540, less the £12000 already paid by the composite. You owe el Gordo £7540

I thinks it's actually a bit more, because Standard rate is 22%, not 20%, but I couldn't be bothered to work it out

Mind you, if you earned 70k PAYE, you'd pay over 23,000 in tax and NI

Basically, on dividends, you save the NI - you don't save on your tax bill (and the NI on income over £32760 is only 1%)

[rootsnall]

Have you ever done a self assessment return ? Does your accountant do it for you ?

Those figures look fine for 1 invoice and if you only earn a total of around 30K for the year you won't owe any extra tax. Using a Ltd you would get virtually the same figures ( but get charged £50-70 rather than £300 ). However if you do say 10 invoices like this for the year you definitely owe a good chunk of tax to the IR and this should be paid when you do your self assessment.

The corporation tax paid by your composite covers you for personal basic rate tax on the dividends you've receive ( ie. upto 30K ish per annum ). If you receive salary + dividends over 30K then for everything over 30K you will owe 17% tax on it.

The reason for using a composite or your own Ltd is to avoid paying NI, it doesn't come with a magic formulae for not paying higher rate tax !

I think you need to speak to your accountant or try filling in a self assessment for yourself and you'll hopefully understand.

[Underscore2]

So all

composites are dodgy then? I've spoken to 3 and they all do it this way and they all claim no further tax laiability?

[Darren@UptonAccountants]

40% Tax

You do not pay any more tax as long as you stay out of the higher rate band. Divis are tax paid at the basic rate, so go over the threshold and you have to make uo the difference..

Or have I been getting it wrong all these years?

Mal is correct, if your total taxable income goes into the 40% bracket then you have to cough up some more cash to GB for the difference.

[Underscore2]

Example based on £500 per day

Billed 10,000
less admin fee 300
Net 9700
- Salary 717.80
Profit 9882.20
- Tax Liability 1706.62
Net to contactor 7275.58
add Salary 598.32

Final payment 7893

Percentage deduted 21%

If it is dodgy than there are hundreds of us being dodgy.

[Underscore2]

No.

I'm paid 10k salary and the rest as Divs - corp tax. I walk away with 80%. Same as you would get with a Ltd but without the hassle. Even when i was a permie a few years back I used to get Divs - I NEVER HAD TO PAY ANY OTHER TAX ON THEM. And I had all my accounts checked many times.
Is Tim etc saying that you pay the corp tax (ie the composite pay it) - then I get taxed again on the divs by personal tax? If that was the case why would anyone use a composite?

[rootsnall]

Have you got some rough figures of how it all works !?

If you are only making 30odd K after expenses it is possible there is no extra tax burden. If you are earning more than that then your accountant knows something a lot of others dont !?

[Underscore2]

well

My accountant is wrong then - and teh 3 or 4 contractors I know that use the same service for th past 5 years - must also be wrong. You do pay corp tax. but thats all.

[tim123]

YOU DO NOT have to pay additonal tax on those dividends. I wish people would stop saying this. If you a Ltd and you pay yourself divs you don;t pay any additonal tax. Same goes for composite - if run correctly.

Underscore people keep on saying it because you are wrong.

If you are paid by divis and you ARE a higher rate taxpayer you have extra tax to pay.

How many times do you have to be told this before you will believe it.

tim