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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I am a self employed chef, earning £40,000 per annnum, i am

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Hello, I am a self employed chef, earning £40,000 per annnum, i am looking to buy a property to let that will generate £10,000 income nd have been advised to purchase as a Limited company as there are some tax advantages if i go over the higher rate threshold, If i did this , What would the comparison be between personal and limited company tax PLUS would it be possible for me to Put all my income including the Property purchase through the limited company , if i did this would there be any advantage.
Assistant: Are you filing as a sole proprietor or independent contractor?
Customer: I am not sure what you mean, My status as a chef is clearly just myself but i do contract work, the house would be an additional income .
Assistant: Anything else you want the Accountant to know before I connect you?
Customer: No i think i have outlined the circumstances clearly.

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

If you buy through a corporate structure then the net income will be subject to Corporation Tax (CT) at 19%. However, there is no Personal Allowance (PA) available by this route. Any income you receive from the company would have to be made through PAYE channels with Income Tax (IT) and possibly national Insurance (NI) contributions deducted.

I do hope that you have found my reply of some assistance.

Customer: replied 9 days ago.
Ok so Doing it this way, The rental income could be reduced by 100% of the interest on the mortgage and allowable expenses, Any surplus would be taxable at 19% Going to 17% in the future but could be paid by dividends £2000 being tax free, the balance being taxable at 7.5% on the personal tax self asesment, so if Just the property income went through The company this would be preferable to Just paying Higher rate tax on the rental income and not being able to claim interest relief in the future.Is That correct.
Customer: replied 9 days ago.
At this point i would prefer to get the outline information, once discussed , we will arrange to call later today.

You have sussed it out to a 'T' to use an old expression. The Government has announced a reduction to 17% in April 2020. Remember that dividend income over the 2K in any one tax year will be grossed up to your marginal rate of taxation.

Customer: replied 9 days ago.
What are the bandings for dividend taxation please, Would it be possible for the whole income and the rental to go through the limited company rather than just the rental income, What is the limit on directors National insurance contributions, Ie £50,000 less expenses to say £40,000 via a limited company less 17% = £6800 tax leaving £33200 paid as dividends to go over to personal tax, What would the national insurance cap be on this as a director and the dividend taxation.

I am a diabetic and have just taken my insulin so I must eat. I will be back within the hour with a reply.

Customer: replied 9 days ago.
ok no problem i will stay on line thank you
Customer: replied 9 days ago.
still on line

There are no bandings for dividend taxation.

Dividends do not attract NI Contributions.

If you are paid by the company then NI is:

£162 to £892 a week (£702 to £3,863 a month) - 12%

Over £892 a week (£3,863 a month) - 2%

Customer: replied 9 days ago.
Apologies, I thought there was £2000 at zero an amount at 7.5% and a ceiling at which it went to 32.5 %National insurance is there a director limit above which no more is paid.If you are paid by the company then NI is:£162 to £892 a week (£702 to £3,863 a month) - 12% = Do we pay thisOver £892 a week (£3,863 a month) - 2% = Then this over the limit or Just the 2% if income is £3863Is there any issue with the normal self employed income going through the limited company as well as the rental income or should the limited company only be used as a vehicle for the rental property.
Customer: replied 9 days ago.
Does an individual pay national insurance on dividends.

In your case, yes.

2863 a month after which the contribution is at 2%.

The company deducts this from your emoluments along with Income Tax.

The 2% applies to income over 2863 per month.

None.

Dividend payments do not attract NI contributions.

Customer: replied 9 days ago.
If a limited company is set up and the rental house is bought through it and the turnover from chef work is invoiced by the limited company is this allowable.

Yes, it is.

Customer: replied 9 days ago.
all the income would go through the limited company , less allowable expenses, the profit would be taxed at 19% corporation tax, the balance would be paid by dividends against which the personal allowance would apply, there would be no National insurance to pay, but could be paid voluntarily to get a qualifying year for old age pension and the balance of income after personal allowances would be taxed at £2000 zero balance at 7.5% up to what amount. Is this correct, if so the tax would equate to around 26.5% currently and 24.5% in 2020, Is this correct.

Indeed it is. Remember that dividends do not count against the company in the Corporation Tax computation.

Please be so kind as to re=ate me before you leave the Just Answer site.

Customer: replied 9 days ago.
Apologies , Not understanding the ---- Remember that dividends do not count against the company in the Corporation Tax computation. --- Fully
The income goes through the company less expenses = Profit Taxed at 19% Profit drawn as dividends and taxed under self asessment that was my viewAre You saying -The income goes through the company less expenses = Profit Taxed at 19% so if Profit drawn as dividends is say 100% of the profit Does the company then pay tax at a different rate on the dividends as i understand that there is a tax burden that a company pays when directors draw their income via dividends as well as the personal tax that is paid.At what point does the personal tax on dividends lift from 7.5% to 32.5% or any other rate.

That is the Income Tax route. Where a company pays a dividend that must be from free cash and is not included in the calculation of the Corporation Tax position.

Customer: replied 9 days ago.
On this basis, if all the profit is drawn as dividends and the company does not pay any corporation tax and the only tax paid is by the director via self assessment - This cannot be correct - surely the dividend is paid out of distributable reserves upon which corporation tax has been paid.

Dividends do not have any effect on Corporation Tax liability whatsoever and can only be paid from free funds in the company's hands ie after all charges have been dettled.

Customer: replied 9 days ago.
the company makes a profit - pays corporation tax and then the money left in the business can be drawn down as dividends and put through personal self assessment is that correct.

Indeed.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 9 days ago.
Thank the information was very helpful and i have a clearer understanding of the position. Best Regards ***** *****

Delighted to have been of assistance, Brian.

Thank you for your support.