does profit include paid dividends

[ASB]

Here is a quick example for you linzi686 using your rate of £550pw = approximately £25,000. Assuming you are not VAT registered, and have no business expenses (to keep it simple);
(1) Sole trader - you pay £3,505 in PAYE, £1,600 in class 4 NIC, and £130 in class 2 NIC, per year;
(2) Ltd company (assuming a salary of £7,000 per year) - you pay £3,312 in Corporation Tax, and say £1,200 in accounting fees, per year;

So over a year you would be better off by £723 if you were to work through your own ltd company. The decision for you is, is that enough of a saving to go through with the incorporation of a new company, and the additional responsibility that this brings.

Hope that helps!

If the OP is S/E currently and filing their own accounts then they are probably perfectly capable of doing all the accounts themselves (with a bit of a learning curve for the differences). If they are not filing their own S/E accounts then presumably there is some cost involved and this is probably not entirely dissimilar to the accounting fees they may occur if incorporated.

[Greg@CapitalCity]

my point is i cant see the benefit of me going limited if your dividend gets taxed by the company (me) at 20% before they get given to the employee (me).

Here is a quick example for you linzi686 using your rate of £550pw = approximately £25,000. Assuming you are not VAT registered, and have no business expenses (to keep it simple);
(1) Sole trader - you pay £3,505 in PAYE, £1,600 in class 4 NIC, and £130 in class 2 NIC, per year;
(2) Ltd company (assuming a salary of £7,000 per year) - you pay £3,312 in Corporation Tax, and say £1,200 in accounting fees, per year;

So over a year you would be better off by £723 if you were to work through your own ltd company. The decision for you is, is that enough of a saving to go through with the incorporation of a new company, and the additional responsibility that this brings.

Hope that helps!

[MarillionFan]

The main saving is NI.

Most agencies won't deal with sole traders. If you're working direct, and your client is happy with sole trader status then you don't need to change.

ftfy

Companies may deal directly with a sole trader, but for agencies they won't touch you with one of those dirty sticks.

[mudskipper]

my point is i cant see the benefit of me going limited if your dividend gets taxed by the company (me) at 20% before they get given to the employee (me). Therefore i'm paying the tax anyway. From what i'm getting i would be better off staying as a sole trader paying 22% on my earnings, less personal allowance, rather than going through the hassle of going ltd to just save paying 2% extra tax.

Or have i got this wrong?

The main saving is NI.

Many agencies won't deal with sole traders. If you're working direct, and your client is happy with sole trader status then you don't need to change.

[Wanderer]

1. what should i pay myself as a wage to keep tax and NI at a minimum? (make it up in dividends)
2. is the profit of the business looked at minus the dividends paid or including them?

Take £7k/year salary and pay no PAYE or NI on that
Anything you claim as expenses gets paid for out of your company bank account or reimbursed to you
What's left is profit which your company pays 20% corporation tax on after the year end accounts have been done
The 80% that is left over can be paid to the shareholders as a dividend
There is no further tax due on this dividend unless you hit the higher rate income tax (~£43k/year)
You can pay dividends any time that the company has profit to pay them out of (weekly/monthly/quarterly - whatever you like), just keep the 20% aside for CT.
Join the flat rate VAT scheme and you can make some money too.

There is a good calculator here.

You will need to have an accountant to help keep on top of all the admin that HMRC create, an accountant will cost somewhere between £1,000 to £1,500 per year.

[malvolio]

Very helpful thanks.....

cheers everyone else

These are basics. You'd get more respect if you tried thinking.

Anyway, in a nutshell -

Gross income excluding VAT minus business expenses (no, look them up yourself) minus salary minus employment-related taxes equals gross profit.

Gross profit minus corporation tax equals net profit.

Net profit equal funds available for paying out as dividends.

That's assuming you want to clean out the company and not do something intelligent like leave some for bench time. In which case you build up retained profits which are tax paid and available for dividends later on. But that's getting a little complicated for now.

If you can't understand any or all of that, tough; you have no capability to be running a company.

HTH

[linzi686]

my point is i cant see the benefit of me going limited if your dividend gets taxed by the company (me) at 20% before they get given to the employee (me). Therefore i'm paying the tax anyway. From what i'm getting i would be better off staying as a sole trader paying 22% on my earnings, less personal allowance, rather than going through the hassle of going ltd to just save paying 2% extra tax.

Or have i got this wrong?

[linzi686]

Can you draw a diagram please?

Very helpful thanks.....

cheers everyone else

[MarillionFan]

There are some guides in the right hand column that cover all of this in great detail.

Can you draw a diagram please?

[mudskipper]

Ive spent about 8 hours solid searching for answers

Sorry if i seem thick but does that mean my company would pay corporate tax on the dividends or just on whats left at the end of the year?

thank you so much for you help

Your company pays corporation tax on all profits.
You then take divvis from what's left. (So yes, you pay corp tax on dividends)

Different accountants advise different things salary-wise. You definitely need an accountant, so get one and see what they suggest.

[linzi686]

Ive spent about 8 hours solid searching for answers

Sorry if i seem thick but does that mean my company would pay corporate tax on the dividends or just on whats left at the end of the year?

thank you so much for you help

[northernladuk]

There are some guides in the right hand column that cover all of this in great detail.

[xoggoth]

Dividends do not affect profit, they are paid from the net profit after all deductions like expenses, salary, employer NI and CT.

Think salary thing has been covered on CUK so search here first. Not that everyone agrees.

[NotAllThere]

1. FAQ - try google
2. Including

[linzi686]

Hi ive got a couple questions hoping someone can help... im thinking of going ltd (small business only takes around £550pw)

1. what should i pay myself as a wage to keep tax and NI at a minimum? (make it up in dividends)
2. is the profit of the business looked at minus the dividends paid or including them?

thanks