I recently set up a limited company and have an accountant taking care of much of the financial side. I wanted an opinion other than my accountants.
For the entire income I recieve from clients I am paying 20% corporation tax. If I pay myself £7kpa there is no income tax. I can take 30k dividends tax free, thereafter I pay 25% tax.
So I can take £37k pa @ 20% tax then everything after is 45% tax
If I was in a PAYE job, I would pay around 20% tax on 32k then about 40% thereafter. But I would also have holiday pay, sick pay and job security.
I know a guy on a much higher rate than me, about £500 per day, and he claims to pay around 18% tax which has me bewildered. He could be lying or misinformed ofcourse, but I wondered if there is something my accountant is not doing. At present I am failing to see where the benefit of a limited company is.
I had a chat with my accountant yesterday, who also brought up the point I would be liable to 12% NI if I were to take more as salary rather than dividend.
So I am paying
- nothing on 7.9k
- nothing on expenses
- 20% Corporation tax on up to 32k Dividend
- 45% (20% Corp + 25% income) on anything above the 32k
If I were not a limited company, I would pay
- nothing on 10k
- 32% on 32k (20% income + 12% NI)
- 52% (40% income + 12% NI) on anything above