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bigduckontax
bigduckontax, Accountant
Category: Tax
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I run an online business all by myself, I set up a limited

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Hi,
I run an online business all by myself, I set up a limited company (Spinxx LTD) . I already pay VAT, approx £9,000 every quarter , however for corporation tax and self assessment I am looking for the most tax efficient way to do it, and also the most efficient way to pay myself from the company and reducing corporation tax as much as possible. The company profit for 2017 is about 35,000.If I pay myself more from the company, will I pay less corporation tax? Or is it better to stay under the tax threshold and leave the money in the company? Is there a sweet spot where I can maximize the amount of money that I take out to reduce corporation tax as much as possible? I am not sure about Dividends and how they can effect corporation tax, I have also heard about how you can use pension funds to reduce corporation tax and help with retirement.I have to complete my self assessment for myself as a director (I will pay the penalty) shortly, so I am asking advise before I start.Apologies for the lack of comprehension, its my first year running a business and doing self assessment.AHMED

Hello Ah,ed, I am one of the experts on Just Answer and pleased to be able to help you with your question.

Firstly pensions, either the company or you may make up to 40K of these in any one tax year or a combination of the teo. They are allowable against Corporation Tax (CT) [conpany's] or Income Tax (IT) [yours]. Dividends are tax free in your hands up to 5K [17/18] or 2K [18/19] but do not count in the CT computation. CT is at 19%. Wages are allowable against CT, but must be paid through PAYE channels with IT and NI deductions made. It is all a case of juggling it to see the most tax effective way for you personally never forgetting that you have a Personal Allowance (PA) of 11.5K to offset IT. Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes!

That is the general outline, I do hope it helps.

Customer: replied 4 months ago.
Thank you, ***** ***** clarify, the 11K Personal allowance - is that counted against CT? I have read somewhere that the maximum is about 8K tax free, when I complete self assessment form, is that what PAYE is? And if I pay myself under 8k, will that not count towards being against CT?Please can you also clarify the pensions part at the beginning "either the company or you may make up to 40K of these in any one tax year or a combination of the teo" - I'm not sure what this means, also would Vanguard be a eligible retirement fund that I can pay into? Or does it have to be a particular government scheme for it to count as a pension contribution?Thank you

The PA is 11.5K this tax year and 11.85K next. It counts against IT in the calculation and gross salaries count against CT. Pay As You Earn (PAYE), created in the 1940s, is a compulsory way of paying employees whilst deducting IT and NI. Incidentally, my Mother introduced to to the BBC payroll to much fury at the time. You cannot just draw money from a company, you must use PAYE.

Pension examples: your could pay 40K, the company could pay 40K or the company 20K and you 20K. Simple, as the meerkat in the TV advert would say. It can be to a private pension scheme.

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Customer: replied 4 months ago.
Thank you,
To clarify, the 11K PA must be taken out via PAYE, and is this the same thing as self assessment? Or do I have to set up PAYE and self assessment? I am the only person who runs the business (its online). Apologies if I'm going round in circles, its very confusing to me.So if a company has made 35K in profit, and pays 10k into a pension plan, 11k as a personal allowance, there will only be 14k left to tax? Is it a common thing for companies to put a lot of profit into pensions to protect profit? Is it allowed?Finally, I have a stock portfolio, if my company pays into that stock portfolio, can that be deducted off CT?I really appreciate your help

You will have to set up PAYE. That is what the company declares to HMRC for employee's remuneration. You will probably have to self assess, that is what you personally declare to HMRC as income and capital gains.

The PA is what you are entitled to receive free of IT.

35K profit less 10K pension contributions less 11K to an employee that would leave 14K liable to CT at 19% equals 2.66K tax due.

Thank you for your support.