Self Employed vs Employee vs LTD - Shoot me down!

1. Are my principles correct? 2. Is it always best to take a dividend at the £11k ish?

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1. Are my principles correct?

2. Is it always best to take a dividend at the £11k ish?

Self employed vs employee vs  LTDThanks in advance.

Replies (34)

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By Accountant A
21st Nov 2018 18:35

If you are earning "£100k" and you don't have an accountant, it's your sanity I'd be concerned about rather than your principles.

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Replying to Accountant A:
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By deanr12345
21st Nov 2018 20:49

So in short you don't know?

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Replying to deanr12345:
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By Accountant A
21st Nov 2018 21:58

deanr12345 wrote:

So in short you don't know?

Oh, very junior school playground of you.

I spent years getting an accountancy qualification and experience. I didn't realise you could get all you needed to know about complex tax and personal finance decisions from an Excel spreadsheet.

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Replying to Accountant A:
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By deanr12345
22nd Nov 2018 20:34

Is the answer not a set of mathematical rules that can indeed be solved by an excel created sheet?

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RLI
By lionofludesch
21st Nov 2018 18:44

Profit extraction is one of the most complicated calculations we do.

Depending on your circumstances, the best salary to take might be £0, £8,000ish or £12,000ish. Or another number.

With a potential income of £100,000, I refer you to my learned colleague, A.

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Replying to lionofludesch:
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By deanr12345
21st Nov 2018 20:50

Constructive comment

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By Matrix
21st Nov 2018 19:23

Not sure what you are trying to do but you need to adjust for NI on salary above £8,424, the dividend allowance is currently £2k and tax on dividends is paid out of previously taxed profits so the rate is 6%.

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Replying to Matrix:
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By deanr12345
21st Nov 2018 21:01

Thank you for you input, much appreciated.
I incorrectly used a previous years allowance at £5k.

You are also correct yes 7.5% of 19% =6% understood.

My aim was to find the most tax efficient way to paying £100k to an individual. Sole trader vs ltd. The calculations are many but in essence there is an optimum split method.

I would assume that any accountants working in practice would need to perform this exercise each tax year.

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Replying to deanr12345:
RLI
By lionofludesch
21st Nov 2018 22:26

You can also assume that they have all the information they need before doing so.

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Replying to deanr12345:
Stepurhan
By stepurhan
21st Nov 2018 23:14

deanr12345 wrote:

I would assume that any accountants working in practice would need to perform this exercise each tax year.


Indeed they do.

Based on information specific to individual clients, who realise that the knowledge required to do this is valuable and hence pay them for that advice.

Not for cheapskates who reach for cheap insults the moment someone doesn't want to hand out valuable advice for free.

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Replying to stepurhan:
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By deanr12345
22nd Nov 2018 20:32

Why leave a comment stating I am not going to answer your comment?

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Replying to deanr12345:
paddle steamer
By DJKL
22nd Nov 2018 01:32

7.5% of (100%-19%) is circa 6%, actually 6.075%

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Replying to DJKL:
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By deanr12345
22nd Nov 2018 20:36

Thanks

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Replying to Matrix:
ALISK
By atleastisoundknowledgable...
22nd Nov 2018 08:09

AWeb - why is Matrix’s post in the ‘to be reviewed for naughtiness’ pink? Not sure what he’s said to put the system’s back up ...

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Replying to atleastisoundknowledgable...:
RLI
By lionofludesch
22nd Nov 2018 09:17

atleastisoundknowledgable... wrote:

AWeb - why is Matrix’s post in the ‘to be reviewed for naughtiness’ pink? Not sure what he’s said to put the system’s back up ...


Is it a Breast Cancer Awareness thing ?
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paddle steamer
By DJKL
22nd Nov 2018 01:38

Your CT looks incorrect re company, you assume taxable profits of £84,000 which means you assume £16,000 tax deductible costs, yet no salary through as no NI recorded.

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Replying to DJKL:
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By deanr12345
22nd Nov 2018 21:19

Understood, thank you.

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paddle steamer
By DJKL
22nd Nov 2018 02:00

Your company one, with no salary, is:

Profits 100,000
CT @ 19% 19,000
Dividends £81,000

Tax on dividends 11,850 @0%= 0
Tax on dividends 2,000@0%=0
Tax on dividends 32,500 @ 7.5% =2,437.50
Tax on dividends 34,650 @32.5%=11,261.25
Personal tax therefore 13,698.75

Total tax £32,698.75

But I can improve on that by paying a salary of say £8,424

In that case

Profits 91,576
CT 17,399.44
Dividends 74,176.56

Then balance PA 3,426 @0% is 0
Band 2,000 @0% is 0
Then £32,500 @ 7.5% 2,437.50
Then 36,250.56 @32.5% 11,781.50

Total tax £31,618.44

Your employee one ignores employer NI and needs reworked for correct allowances/ bands

Your self employed one needs reworked for correct allowances/bands

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Replying to DJKL:
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By deanr12345
22nd Nov 2018 21:18

Many thanks for your time spent on this, much appreciated. Very detailed, very helpful.

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ALISK
By atleastisoundknowledgable...
22nd Nov 2018 08:15

1. Where does £11k come from? Has the PA dropped?

2. You’re assuming AE Opt-out, should you?

3. Salary of £8,424 or £11,850 may be most efficient (or any other figure - you don’t have enough specific information to know).

4. Are there spouses / family members available to use allowances, maybe with alphabet shares?

Your spreadsheet is too generic, too basic and (see #1 & other comments re div allowance) wrong.

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Replying to atleastisoundknowledgable...:
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By deanr12345
22nd Nov 2018 20:46

Thank you for your input, there are more variables than I initially realised. I will review further.

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By SXGuy
22nd Nov 2018 08:46

Don't forget your self employed example neglects the fact that tax over 1k attracts POA in first year, so expect to pay double.

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Replying to SXGuy:
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By deanr12345
22nd Nov 2018 20:51

Thanks, noted.

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By thomas34
22nd Nov 2018 08:48

The one piece of information that I always procure is the client's state pension situation. On the basis that the majority of clients have yet to collect a full book of stamps I'd put through £8,424 as a salary to both accrue another year's pension and to maximise CT relief.

The odd few take the full personal allowance (if the employers allowance is available) since the additional CT saving exceeds the employees NI.

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Replying to thomas34:
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By deanr12345
22nd Nov 2018 21:05

Good point, thank you for your time, much appreciated.

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By bernard michael
22nd Nov 2018 09:50

Perhaps the OR is over pensionable age and doesn't pay NIC

The only true way of getting the answer is pay an accountant for advice

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Replying to bernard michael:
RLI
By lionofludesch
22nd Nov 2018 10:09

bernard michael wrote:

Perhaps the OR is over pensionable age and doesn't pay NIC

The only true way of getting the answer is pay an accountant for advice

No, no. I'm sure the OP will know that, Bernard.

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Replying to bernard michael:
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By deanr12345
22nd Nov 2018 20:57

1. Thanks for the NI comment, noted.
2. What accountancy qualification do you recommend the accountant has to ensure they provide the maximum tax efficiency?

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Replying to deanr12345:
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By Briar
23rd Nov 2018 23:19

It's not qualifications that matter - it's knowledge! Qualifications help but not necessarily.

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By Duggimon
22nd Nov 2018 11:46

You've cut off the rest of the "limitations" list so I can't really say how accurate the spreadsheet is.

Other than that, and all the wrong figures, it's pretty good.

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Replying to Duggimon:
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By deanr12345
22nd Nov 2018 20:50

Thanks for your help

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By Briar
22nd Nov 2018 16:04

Bang! Bang! Bang! Are you dead yet?

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Replying to Briar:
Red Leader
By Red Leader
22nd Nov 2018 18:06

Briar wrote:

Bang! Bang! Bang! Are you dead yet?


Well the OP did say "Shoot me down!".
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Replying to Red Leader:
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By deanr12345
22nd Nov 2018 21:01

I always wear my bulletproof jacket when dealing with accountants in this neck of the woods, cheers youngster.

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