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New dividend rules - comparisons between sole trader and limited company

Is anyone aware of any comparison tables that have been produced comparing tax paid as a sole trader with tax paid on salary/dividend mixes for a limited company under the new rules for 16/17?

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I did some work immediately after the budget
I did some work immediately after the summer budget, on an assumed interpretation of how dividend tax would work, which still accords to what's known.

It's at 15/16 rates.

http://www.whitefieldtax.co.uk/self-employment-v-company/

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I am working out the break even point

Despite what the govt may think about tax geared incorporations, there are many other reasons for incorporating, not least limited liability, perception, flexibility of profit extraction, deductibility of certain expenses, H/W planning, exit stategy etc.

So I would advise a new client to look at the whole picture, not just the tax rate. Also factor in the reduction in the CT rate and other income and factors (whether employing people etc).

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Thanks Portia

I have passed your link on to a number of my clients who were asking about this and they have found it very helpful.

Your humour is much appreciated as always!!

Anne

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absolute tax
Absolute tax have a spreadsheet for about £100 shows this and others. I only bought it last week so not used it much. But on first look it seems pretty decent. Useful for me it has an option to calculate the extra income needed in 2016/17 to give people the same net income.

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And...

leicsred wrote:
Absolute tax have a spreadsheet for about £100 shows this and others. I only bought it last week so not used it much. But on first look it seems pretty decent. Useful for me it has an option to calculate the extra income needed in 2016/17 to give people the same net income.

... how do you know it is giving you the right answer?

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check
On any new piece of software I do a check on the first few, also a reasonableness check on all calculations.

I take this as sufficient, do you re check every calculation your software does just in case?
How do you know there isn't an error in the coding on excel? Or do you do it all with pencil and paper too just to make sure?

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Have done some number crunching for 16/17 using that very useful tool Excel and assuming a sole director/shareholder (so no employer NI allowance) and assuming all profits are withdrawn (8,060 as salary rest as dividend) reckon the pure tax and NI saving from trading via a Limited Company compared with a sole trader based on the following profits would be

Profit 20,000  Tax saving £511

Profit 30,000 Tax saving £811

Profit 40,000 Tax saving £1111

Profit 50,000 Tax saving £2321

Profit 60,000 Tax saving £2268

Profit 75,000 Tax saving £1668

Profit 100,000 Tax saving £668

So there is still a small advantage but after extra accountancy costs its not a lot.

More of a saving can be obtained if a spouse is also a Director & Shareholder.

Of course there are the other advantages .. limited liability, status and credibility of a Company etc..

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@anneaccountant

... and do those numbers take POA's into consideration?

Thanks.

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Eh ?

mumpin wrote:

... and do those numbers take POA's into consideration?

Thanks.

POAs are a timing difference, not an extra tax.

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Thanks

Will let you know if I get the same.

 

 

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My (Absolute Tax) spreadsheet agrees with your figures (well within £5)

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Woohoo! At last, an accountant that can actually do some sums.

If you carry on beyond £100,000 though you will find that there is a level at which it starts to be disadvantageous.

Obviously that is the level where limited liability is a must have though.

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High praise indeed thanks for that Portia and  I shall enjoy this brief moment in the glow of your approval.

Thank you

 

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