Corporate tax

[E36GUY]

Something bugging me here.

If you are a Ltd Company but there is only one person working for said company, how does the tax work? I know what the flat rate-vs-turnover is for corp tax but how does the one person that works there get paid without getting stung for more tax? It would seem that you'd end up paying twice on the same money?

[thewave]

Simply put.

The company pays tax on it's profits. 'Usually' the director is paid a salary just above the national insurance threshold about £5,200. The director pays virtually nil tax on this (assuming no income from elsewhere, and he/she is entitled to full personal allowances)

The remaining profits would be distributed to the shareholding director by way of a dividend. The dividend has a tax credit attached to it, which basically means the tax has already been paid within the company's corporation tax liability, and the director is not liable to any further tax until their income exceeds nearly £40,000.

[E36GUY]

That explains that then. Cheers dude. So if the income exceeds the nearly £40k then you pay tax again on the amount above that I presume.

[Olf]

E36GUY said:

That explains that then. Cheers dude. So if the income exceeds the nearly £40k then you pay tax again on the amount above that I presume.

Yes but only another 22.5% I think isn't it?

[thewave]

Tax on dividends recieved which exceed the higher rate threshold are taxed at 32.5%

[Olf]

thewave said:

Tax on dividends recieved which exceed the higher rate threshold are taxed at 32.5%

But the 10% already paid still comes of? So the balance owing is 22.5?

[Exigeowner]

Can you really get away with paying so little in Salary ? I though this poss loop hole was being looked into much closer, I have been informed that paying a more realistic salary might keep the tax man at bay.

[Olf]

Exigeowner said:

Can you really get away with paying so little in Salary ? I though this poss loop hole was being looked into much closer, I have been informed that paying a more realistic salary might keep the tax man at bay.

If you're a Director rather than an employee supposedly yes. They can't MAKE you pay yourself more. If you have a fully salaried spouse it helps I guess because you can prove you don't need the div to live.