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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 40 years experience as a qualified accountant (UK based Practitioner)
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If I opened a limited company up and earnt 100 k would I be

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If I opened a limited company up and earnt 100 k would I be able to share dividends and tax allowance with a partner or family member . This way I wouldnt be taxed at 7.5 % firstly then 32.5 % at higher rate. The split would be 50/50 out of 100 K earnings so we’d both only pay 7.5% on 50k each is this ok to do so .
Assistant: Have you talked to a tax professional about this?
Customer: No just ideas at moment
Assistant: Anything else you want the Accountant to know before I connect you?
Customer: I am considering whether it would be better to earn 100 k employed or 100k as an owner of a limited company . I think drawing divends would give more monthly take home
Customer: replied 5 days ago.
I have used 100 k as a rounded hyperthetical figure .
Customer: replied 5 days ago.
Does it also have to be a partner living in same house to be your business partner or can it be a relative as your business partner living in another property . My partner and I aren’t married but we have 3 children and lived together for 15 years

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.
Many thanks

Customer: replied 5 days ago.
Thank you

Thank you for your question.

To be business partners in a business the two don't have to related. You can form a company with anyone e.g. relative, friend.

Dividends are payable to shareholders out of taxed profits. Your business partner(s) would also have to be shareholders to be entitled to dividends.

I hope this is helpful and answers your question.
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Customer: replied 5 days ago.
Ok thank you but you ve only answered part of my question
Can I share out of 100 k business profit 50/50 split so each partner pays only 7.5 % tax
Customer: replied 5 days ago.
They would be 50/50 ownership of company

Thank you for your reply.

Shareholders would be entitled to dividends on profits after tax and rank equally.

If dividend payments keep total income at basic rate tax then dividends would attract tax at 7.5%.

I hope this is helpful and answers your question.

Customer: replied 5 days ago.
Is that 7.5 % each based on 100 k . This was each party would be below higher rate threshold .

Thank you for your reply.

Based on your example, each shareholder would have income below the higher rate threshold and dividends would attract income tax at 7.5%.

You may wish to consider a combination of small salary and rest in dividends. Salaries is a deductible expense in company accounts.

I hope this is helpful and answers your question.

Customer: replied 4 days ago.
What would be size of salary to keep under threshold - is it around £900 per month. The rest would be paid monthly as dividend .Would it be 7.5 % up to 50 k then the remainder 32.5 % for the 50 k if all were drawn
Customer: replied 4 days ago.
This is assuming I have no business partner

Thank you for you reply.

If you were the sole director/shareholder of your company, a annual salary of (720x12) £8,640 would mean there is no income tax on it and no employee and employer NI.

Example -

Profit before salary £100,000

Profit after salary before tax (100,000-8,640) £91,360

CT payable at 19% (91,360x19%) £17359

Profit after tax (91,360-17,359) £74,001

This amount is available for distribution as dividend.

Your tax on dividends of £74,000 would be

(37,500x7.5%)+(34,500x32.5%)=(2,813+11,212) £14,025

Total tax payable on profit of £100,000 = (17,359+14025) £31,384

I hope this is helpful and answers your question.

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Customer: replied 4 days ago.
Why is 91360 payable at 19 % .
I thought the first 50 k paid as divends would be 7.5 % and the remainder which would be 91360-50000 = 41360 .
Therefore 32.5 % on the 41360 is all drawn .I don’t understand your calculation sorry
Customer: replied 4 days ago.
I think I can see now - co operation tax is 19 % I didn’t realise you had to add this.What’s a directors loan account then ?Would I be able to offset any spend to run business like monthly car payment , electricity , software/ hardware and anything else .
My proposed business would be in the main providing a service so no gross profit margin and suppliers to pay.I assume I’d have to be Vat registered if I was to earn 100 k ?

Thank you for your reply.

If the company made a profit of £100k there is CT to pay on it before proft after tax can be distributed.

Directors' loan account is used when yoy pay for items out of own funds and company owes you that money.

You are not taking into account the tax payable by the company.

If turnover over £85,000 then the company has to register for VAT. You would be able to deduct against income expenses incurred wholly and exclusively for the purpose of the business.

You will agree I have answered your original question and additional points raised.

I hope this is helpful and answers your question.

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Customer: replied 4 days ago.
Your tax on dividends of £74,000 would be
(37,500x7.5%)+(34,500x32.5%)=(2,813+11,212) £14,025
Total tax payable on profit of £100,000 = (17,359+14025) £31,384This sum doesn’t add .
Why have you split 74000 into 37500 7.5 %and 34500 %32.5 %

Thank you for your reply.

There is dividend allowance of £2,000

2,000+37,500+34,500= £74,000 (sum equivalent to profit after tax).

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Customer: replied 4 days ago.
Why is it 37500 and 34500 out of the 100 k
Customer: replied 4 days ago.
You’ve split it equally I can see minis deductions but where does 12500 come off 50 k come from and 15500 come off other 50 k

Thank you for your reply.

You are failing to take into account tax allowances available to individuals in the UK.

There is tax free personal allowance of £12,500 (this has taken care of your salary part).

First £37,500 of taxable income would attract dividend tax at lower rate and the rest at higher rate.

You don't have £100k of profits to be distributed. You have £74,000 as shown in previous postings

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