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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15884
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I am 60, employed and have tax and NI deducted at source Gross

Customer Question

I am 60, employed and have tax and NI deducted at source Gross income around £13,000 pa.
I have started a limitede company to do small consulting jobs (fees, hopefully, will be around £20,000 pa GROSS.
Please. do I have to pay additional NI? or maybe I can pay myself regular dividends rather than salary? (I realsie I shall have to pay tax - at the end of the year?)
Many thanks,
Lesley
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

If you start a limited company, it will pay corporation tax on its profits at 20% nine months and one day after the end of the accounting period. Take a look here for information on running a limited company and here for information on corporation tax.

If you take a salary, the company's corporation tax liability will be reduced by 20% of the salary but as you already earn a salary in excess of the personal allowance, you will pay tax on it at 20%. If it is above the starting threshold for NIC, there will be employee and employer NIC to pay.

If you take dividends instead of a salary, whilst the company will not get a deduction for them, they are treated as basic rate tax paid (albeit that the notional tax credit is only 10%) and you will have no further personal tax to pay unless your total income exceeds £42,385 in the 2015/16 tax year. Take a look here for information on dividends and tax.

I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15884
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

How do I get back in touch with you if I need to please?

Expert:  TonyTax replied 2 years ago.
You can come back to this question at any time. I suggest you save the web page address of the question into an email that you can send to yourself.

If you want to ask a question on another topic, you will need to start a new one but you can ask for me to answer it by mentioning my name in the body of the question.

Thanks for accepting my answer.
Customer: replied 2 years ago.

If you can just please clarify.

Can I pay myself dividends every month and thus avoid NI? Presumably if ALL the profit was paid out this way there would be zero corporation tax?

Expert:  TonyTax replied 2 years ago.

You can pay dividends and avoid NI.

As I said in my answer, dividends are not an expense and the company will not get a deduction for them from its income. Dividends make no difference to the corporation tax liability.

Do not click accept or rate as you have already paid.

Customer: replied 2 years ago.

Hi Tony:

So I'm totally clear! If I pay out -say- £5,000 as dividends and leave -say- £10,000 net profit in the company the company will not pay any corporation tax - just on net profit ABOVE £10,000?

Please let me know if you need ny more money!

Lesley

Expert:  TonyTax replied 2 years ago.
You don't need to pay any more money.

If the company makes a profit of £20,000, the company will pay corporation tax of £4,000. That leaves £16,000 as distributable profit. If you withdraw all of that or just some of it, you will still have a £4,000 corporation tax liability. Dividends do not reduce the company's profit for corporation tax purposes as a salary does.
Customer: replied 2 years ago.

Sorry Tony:

Just thought I'd heard somewhere that small companies did not pay corporation tax on the first £10,000 of net profit - is this not the case then?

If that IS the case do HMRC carry it forward and charge you in year 2 if you exceed an agregate of £10,000 for the 2 years - and so on.........!

Again, many thanks,

Lesley

Expert:  TonyTax replied 2 years ago.
The first £10,000 of profits being tax free relief was withdrawn many years ago. Look here for the current CT rates.
Customer: replied 2 years ago.

Its the pest again!

I am the sole shareholder and sole director - can I pay myself as an independent contractor by any chance?!

1. Please let me know when I owe you more money!

2. Are you able/interested in doing my accounts and tax returns at year end?

Its small - currently around US1,500 per month gross income from 2 clients only. Currently all our clients are in USA but we plan to develop in UK soon. (We take the payments via PayPal and hold them in US$ until we need to spend £s then we call the funds down into our Natwest a/c). Most of our expenses are from US based consultants (who are independent contractors).

3. If interested what would your fees be roughly?

Lesley

.

Expert:  TonyTax replied 2 years ago.

Hi Lesley

You cannot employ yourself as a contractor.

1 If you wish to ask a question on another topic, you should start a new question and ask for me if you would like me to answer it.

2 I cannot take on clients through this site unfortunately.

3 See 2 above.

Customer: replied 2 years ago.

Thanks for that Tony (or whatever your real name is!) - how can I contact you direct to discuss the other matter?

Expert:  TonyTax replied 2 years ago.
Thanks.

My real name is Tony.

If you copy and paste the web page address of this question into an email and send it to yourself, you will have ready access to it.

If you want to ask a new question, ask for me by mentioning my name in the body of the question if you want me to answer it.

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