How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Tony Tax Your Own Question

Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14150
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
13905389
Type Your UK Tax Question Here...
Tony Tax is online now
A new question is answered every 9 seconds

Hi. Can you tell me this? I have two strands of income.

Resolved Question:

Hi.
Can you tell me this? I have two strands of income. One has to be as a sole practitioner for professional reasons. The other I can protect by setting up a limited company.

I know that I would not pay VAT on the limited company income and only pay corporation tax.

My question though is this. If I did set up a limited company, pay corporation tax and draw dividends from the company into my personal account would I also have to pay personal tax? If so, whats the point?

Thanks.
Submitted: 12 months ago.
Category: UK Tax
Expert:  Tony Tax replied 12 months ago.

Hi.

A company pays corporation tax at 20% on profits up to £300,000. As a director/shareholder, you can take money out in three ways, through salary, through dividend or repayment of money you may have loaned the company personally.

If you take salary, it will be subject to PAYE income tax and employee and employer national insurance contributions depending on the level of the salary. The company can claim the salary costs as expense in its accounts so it will save 20% in corporation tax.

If you take dividends as a shareholder these are treated as basic rate tax paid and you will only have further tax to pay personally if your total income for the tax year concerned is more than £41,450. Take a look here for information on tax and dividends. In theory, you could take dividends up to £37,305 (grosses up to £41,450) and pay no personal tax so long as you had no other income in the same tax year and your company had undistributed profit of that amount or more. Since a dividend is simply a distribution of profit by the company to its shareholders, it does not reduce the company's profit for corporation tax purpose as salary does.

There is no tax to pay on the repayment of monies loaned to the company by the director/shareholder unless interest is charged.

Many one or two man companies pay a combination of low salaries to keep the tax and nic charges down and dividend. The higher the profit, the more tax efficient it becomes for higher rate taxpayers. In addition, dividends can be taken as and when needed provided there is profit available so as a director/shareholder you can manipulate when you take income to improve tax efficiency.

 

Try putting some profit figures into the comparison calculator here to see the difference in tax and nic liabilities on different types of income.

I hope this helps but let me know if you have nay further questions.

Customer: replied 12 months ago.
Hi

Thanks but I do have another income. It isn't very high but its increasing.

What impact would that have?
Expert:  Tony Tax replied 12 months ago.
If your total income from all sources exceeds £41,450 in the current tax year, you will pay higher rate tax on the excess. Whether that is at 40% on salary from your company or 32.5% (less the 10% tax credit) on dividends depends on how you draw income from your company, salary or dividends or both. You can choose to keep your drawings from the company at a level that keeps you within the 20% tax band of course, taking account of your other income. That is the flexibility of running a business through a company.
Customer: replied 12 months ago.
That is brilliant.

So its only on the excess? Have you been paid for this? I keep pressing accept and nothing is happening.
Expert:  Tony Tax replied 12 months ago.
That's correct.

If you had a total income from all sources of £35,000 say including £20,000 in dividends, you would pay no tax on the dividends. Of course, you would pay corporation tax at 20% on your company profits. Dividends are not liable to NIC and there is where the saving is mainly.

Try clicking on a smiley face, OR or better.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14150
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Tony Tax and other UK Tax Specialists are ready to help you
Customer: replied 12 months ago.
Fantastic.

I don't get smiley faces. I get an accept button.
Expert:  Tony Tax replied 12 months ago.
OK, you have accepted now. Thanks.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Andrew Baker(baktax)

    Personal Tax Adviser

    Satisfied Customers:

    756
    35+ years experience in income tax, CGT, non-residence
< Last | Next >
  • http://ww2.justanswer.com/uploads/baktax/2009-7-15_202414_Frame.jpg Andrew Baker(baktax)'s Avatar

    Andrew Baker(baktax)

    Personal Tax Adviser

    Satisfied Customers:

    756
    35+ years experience in income tax, CGT, non-residence
  • http://ww2.justanswer.com/uploads/teap007/2009-01-10_145815_bill_justanswer_for_profile.jpg TEAP007's Avatar

    TEAP007

    Tax Preparer

    Satisfied Customers:

    754
    Fully Trained Inspector of Taxes / District Inspector/ Team Leader/ Offshore Consultant/ 41 years
  • http://ww2.justanswer.com/uploads/BE/berduchwal/2011-6-7_84817_pict0854.64x64.jpg berduchwal's Avatar

    berduchwal

    Accountant

    Satisfied Customers:

    669
    Qualified accountant and bookkeeper running my own practice since 2008.
  • http://ww2.justanswer.com/uploads/JO/Josh2010/2012-4-29_19490_GettyImages80121770B.64x64.jpg Joshua's Avatar

    Joshua

    Lawyer

    Satisfied Customers:

    61
    LL.B (Hons), Higher Prof. Dip. Law & Practice
  • http://ww2.justanswer.com/uploads/RO/Ronaann/2012-3-19_23343_SSL22629.64x64.JPG Mrs-Tax's Avatar

    Mrs-Tax

    Tax Adviser

    Satisfied Customers:

    59
    Law Degree, 19 years in UK Tax.
  • http://ww2.justanswer.com/uploads/TG/TGraham12/2012-7-17_81212_bigstockBusinessHandshake508163.64x64.jpg Thomas's Avatar

    Thomas

    Solicitor

    Satisfied Customers:

    48
    Exposure to general tax issues
  • http://ww2.justanswer.com/uploads/struppiaml/2009-10-9_95150_anthony_business_002.jpg AnthonyL's Avatar

    AnthonyL

    Tax Adviser

    Satisfied Customers:

    19
    ATT, ATII, 12 years tax experience