Anthony makes annual profits of £60,000. His year end is 31 March.
A comparison of his position as a sole trader or if he incorporates (taking a salary of £5,225 and the balance as dividend) is as follows:
|
2007/08
£ |
2008/09 £ |
2009/10 £ |
|
| Profits before salary if incorporated | 60,000 | 60,000 | 60,000 |
| Salary | 5,225 | 5,225 | 5,225 |
| Dividends if incorporated | 43,820 | 43,272 | 42,724 |
| Taxes payable: As sole trader |
£ | £ | £ |
| Income tax | 15,414 | 14,990 | 14,830 |
| NIC | 2,735 | 3,008 | 3,140 |
| Total | 18,149 | 17,998 | 17,970 |
| Taxes payable: As company |
£ | £ | £ |
| Income tax on salary | Nil | Nil | Nil |
| NIC on salary | Nil | Nil | Nil |
| Higher rate tax on dividends | 3,170 | 3,033 | 2,716 |
| Corporation tax | 10,955 | 11,503 | 12,051 |
| Total | 14,125 | 14,536 | 14,767 |
| Extra taxes payable if unincorporated | £4,024 | £3,462 | £3,203 |
| Income tax | Class 4 NIC | |||
| £ | £ | £ | ||
| 5,225 |
personal allowance
|
- |
|
- |
| 35,400 |
@20%
|
7,080 |
@8%
|
2,832 |
| 19,375 |
@40%
|
7,750 |
@1%
|
194 |
| £60,000 | 14,830 | 3,026 | ||
| Class 2 NIC 52 x £2.20 | £114 |
|||
| Total tax and NIC | £17,970 |
|||
| As company | £ | £ | £ |
| Profits | 60,000 | ||
| Less: Salary |
(5,225) | ||
| Employers’ NIC | Nil | ||
| Profit chargeable to Corporation tax | 54,775 | ||
Corporation tax |
|||
| 0 to 300,000 | 22.0% | 54,775 | 12,051 |
| 300,001 to 1,500,000 | 29.5% | Nil | Nil |
| above 1,500,000 | 28.0% | Nil | Nil |
| 54,775 | 12,051 | ||
| Profit after tax (= dividend) | 42,724 | ||
| Higher rate income tax | |||
| - Dividend plus tax credit | 47,471 | ||
| - Lower tax rate band and allowances available | 35,400 | ||
| - Excess over basic rate band | 12,071 | @22.5% = 2,716 | |