Am i missing something. if a client wants £1500 take home a month via Ltd co.
Am i right in thinking salary works out slightly cheaper than the normal small salary and divi route.
Gross sal plus ers NI = £24,846 and gets a corp tax deduction of £4,969 so cost = £19,877
Divi of £10,550 plus £7,450 salary gives you take home of £18k (£1500 x 12) but you have corp tax to pay on £10,550 of £2,110. total cost £20,110.
Am i having a senior moment (no offense to the older generation) and missing something!!!
Replies (9)
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No .. (he has Phil!)
... you are mixing apples and pears.
What you say is correct, salary up to secondary threshold, divs on the rest is better overall than pure dividend.
You are not comparing pure salary against pure dividend, but against a hybrid, which is the model of most accountants, the main reason being that also the client gets an NI credit too, without having to pay NI.
EDIT, was typing same time as you - lol
I don't understand the other answers...
... but in case they don't mean this, the reason is that you're comparing the amount of post-tax profits required to fund the salary with the amount of pre-tax profits required to fund the dividend/minimum salary. You can't deduct the corporation tax saving from one and add the corporation tax payable to the other.
The amounts to be compared are either your £24,846 (salary) and your £20,110 (dividend/minimum salary), or the £19,877 and the £18,000. Either way, the pure salary route is the more expensive, which I think is OGA's conclusion.
Yes ...
... but, caveat, for the client on pure dividend, if he has other inocme from other sources that may be why, you have to look at the whole picture.
Ther are also other considerations to take in to account, less so these days, but mortgage and pension planning foe one instance may be affected by the salary/dividend mix.
Taking a £50K profit
With salary/divi, the CT is £8,510 (£50,000 - £7,450 @ 20%), so you have £23,490 left (£50,000 - £8,510 - £18,000).
With salary only, the CT is £5,031 (£50,000 - £24,846 @ 20%), so you only have £20,123 left (£50,000 - £24,846 - £5,031).
So salary only will cost you £3,367 more of reserves.
OK ...
£50000, less gross salary £24847, less CT £5031 {(50000-24847)x20%} =
£20122 retained earnings.
£50000, less dividends £18000, less CT £10000 (50000x20%) =
£22000 retained earnings
£50000, less gross salary £7450, less dividend £10550, less CT £8510 {(50000-7450) x 20%)} =
£23490 retained earnings
QED!
Damn you Steve and your flashing fingers!