How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4198
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I am a finance director who is working as a contractor through

Customer Question

I am a finance director who is working as a contractor through their own limited company.

Question one - if I pay myself a salary of £400 (to avoid paying employers NI?) is this tax deductible?

Secondly, I am about to retrain as a professional life coach and switch careers. I have to pay £5k in training costs. If I were to set up a new limited company for my life coaching business could I put this through the company and will it be tax deductible?

Lastly, if I put the income through will I be able to take it as dividend income as I am currently a higher rate tax payer through my existing job and don't want to have to pay 40% tax on my part time earnings unless I have to.

Thanks,
Kate
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello Kate, I'm Keith and happy to help you with your question.

Yes, the salary of GBP 400 per month is allowable against the company's Corporation Tax assessment.

HMRC's general view is against this training being a deduction:

'No deduction should normally be permitted under Section 336 ITEPA 2003 for expenses incurred by an employee for external education. This is so even where the subject of the education is closely relevant to the nature of the employment. The expenses are not deductible because they are not incurred in the performance of the duties of the employment.'

Further HMRC guidance elsewhere does permit training costs to be allowed, but not to enhance knowledge in another totally different area of expertise.

If you are in higher rates tax taking a dividend is of no advantage to you as the dividend will merely be grossed up for tax in your computation and you will still pay 40%, although you will have a 10% tax credit. Also in the company's books dividends are not tax deductible and furthermore may only be made from surplus profits.

So sorry to have to rain on your parade. Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes.
Customer: replied 3 years ago.

Thanks for this, I think I've probably had some bad advice somewhere along the line but can I just check;


 


I was told to set up my own ltd company and invoice through that for my FD role. I will pay 20% corporation tax on my profits after which I can then pay myself a dividend. Will I then pay the 32% tax (or what ever it works out at) on that too? Can't see how I will be better off than if I was just PAYE paying 40%?


 


To give you some figures, for the last tax year I took home £28k as a sole trader and then got dividend income of £15k. This year I will likely fall into the higher rate tax rate bracket for PAYE so would I be better leaving my dividends in the company if I can rather than paying 40% tax?


 


Thanks,


Kate

Expert:  bigduckontax replied 3 years ago.

Nor Kate, frankly, can I see how you would be better off!

 

If you do not have your company declare a dividend then, of course, the company will have to pay Corporation Tax on the full profit, but you won't get hammered personally for higher rates! You can always take a dividend to top up to the level for the higher rate.

 

Please be so kind as to rate me before you leave the Just Answer site.

 

 

Customer: replied 3 years ago.

Thanks for this. One last question then I promise I'll rate you as excellent - do dividends come off before profit for CT purposes or is CT based on profits before dividends?


 


Thanks,


Kate

Expert:  bigduckontax replied 3 years ago.
Dividends do not count against Corporation Tax in the company's assessment and can only be paid from available profits to boot. Fees paid, of course, do. That is another route worth considering, but it will result in the company having to register for PAYE and all the on line palava that now entails!
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.