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Hi Jilly,
Tx-Specimen Q32
Here in this case the tax levied will be based on base the personal tax rate
Firstly, we should consider that the tax on dividend will be lesser than if on the tax on salary salary(remuneration) because for 37700 the tax on dividends is only 8.75% compared to 20% on salary
Secondly, if self employed will pay class 2 and class 4if incorporated will pay class 1 employee for remuneration?
class 1 employer
class 1 A as an employer
all that is bigger tax than if self employedCan you please correct me and clarify more,
Thanks,
(b) Advise Sarah as to why her proposed basis of extracting profits from the new limited company is not optimum for tax purposes, and suggest how the mix of director’s remuneration and dividends could therefore be improved.
Answer:
( b )
(1)The relatively high tax cost of Sarah incorporating her business arises because of her salary attracting both employee and employer NICs.
(2)Restricting the salary to around £9,000, and taking a correspondingly higher amount of dividends, would significantly reduce her overall tax costHi Jilly
It is Q32 in UK-tx specimen exam
Thanks
Q
The following scenario relates to two requirements. You should assume that today’s date is 1 March 2023. Sarah is currently self-employed. If she continues to trade on a self-employed basis, her total income tax liability and national insurance contributions (NIC) for the tax year 2023-24 will be £11,034. However, Sarah is considering incorporating her business on 6 April 2023. The forecast taxable total profits of the new limited company for the year ended 5 April 2024 will be £50,000 (before taking account of any director’s remuneration). Sarah will pay herself gross director’s remuneration of £30,000 and dividends of £10,000. The balance of profits will remain undrawn within the new company.
Hi Jilly,
its already there above,
(b) Advise Sarah as to why her proposed basis of extracting profits from the new limited company is not optimum for tax purposes, and suggest how the mix of director’s remuneration and dividends could therefore be improved.
Thanks
Hi Jilly,
I am more concerned about part b(a) Determine whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the year ended 5 April 2024 if Sarah incorporates her business on 6 April 2023.
Thanks.
They are saying that paying her a high salary incurs NIC for both employee and employer and it would be better to give her more dividends that do not attract such a high cost – she’ll end up with more money in her pcoket that way.
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