A number of GPs and hospital consultants with earnings from sources other than their NHS salary have recently chosen to channel that additional income through a limited company. This allows them to reduce considerably the level and amount of taxation previously charged on that income.
Normally a general practitioner with additional income would have included that income within the partnership accounts which resulted in it being taxed at the higher rate of 40%. When a limited company vehicle is used the initial rate of company tax starts at 0% on the first £10000 of profits and rises thereafter to a maximum of 19%. From the after tax profits of the company the general practitioner can then pay dividends to all shareholders. The resultant dividend in the general practitionerÕs hands then attracts personal tax at 22.5%, but for any other shareholders whose total income does not exceed £33,000 there would be no additional personal tax due. Other shareholders can include a spouse or offspring older than sixteen.
The following table highlights the tax savings that can be achieved on various levels of additional income.
Assume: income from partnership takes the individual into the highest rate of personal tax 40%.
Estimated expenses are the same in either scenario 2500.00 per annum Treating additional income within the partnership.
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Additional Income |
10000.00 |
20000.00 |
30000.00 |
40000.00 |
Less: Est exps |
2500.00 |
2500.00 |
2500.00 |
2500.00 |
Taxable |
7500.00 |
7500.00 |
27500.00 |
37500.00 |
Tax at 00 |
2500.00 |
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Taxable |
7500.00 |
7500.00 |
27500.00 |
37500.00 |
Tax at 40% |
3000.00 |
7000.00 |
11000.00 |
15000.00 |
Retained income |
4500.00 |
10500.00 |
16500.00 |
22500.00 |
Ltd Company set up Income |
10000.00 |
200 |
16500.00 |
22500.00 |
Ltd Company set up Income |
10000.00 |
20000.00 |
30000.00 |
40000.00 |
Expenses |
2500.00 |
2500.00 |
2500.00 |
2500.00 |
Net Profit |
7500.00 |
17500.00 |
27500.00 |
37500.00 |
Corporation tax |
0.00 |
1425.00 |
3325.00 |
5225.00 |
Dividend distributed |
7500.00 |
16075.00 |
24175.00 |
32275.00 |
Increase in retained income |
300000.00 |
5575.00 |
7675.00 |
9775.00 |
Saving as a % of income |
30.00% |
27.88% |
25.58% |
24.44% |
Dividends distributed to Spouse or older offspring who are the shareholders of the company.
If dividend distribution is to the individualAdditional taxDividend distribute costs and professional fees. If these costs are not currently reclaimed through the partnership then the savings from a limited company are increased accordingly.
SJD Accountancy is a national accountancy firm specialising in the formation of limited companies for this purpose. A simple monthly spreadsheet recording all the movements on the company bank account is all that you require to do, leave the rest to them and you will have guaranteed an increase in the amount of retained earnings you receive.
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Grossed up |
7500.00 |
16075.00 |
24175.00 |
32275.00 |
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8333.33 |
17861.11 |
26861.11 |
35861.11 |
Taxation at 32.5% |
2708.33 |
5804.86 |
8729.86 |
11654.86 |
Less Dividend tax credit |
833.33 |
1786.11 |
2686.11 |
3586.11 |
Additional tax |
1875.00 |
4018.75 |
6043.75 |
8068.75 |
Reduced saving |
1125.00 |
1556.25 |
1631.25 |
1706.25 |
Saving as a % of income |
11.25% |
7.78% |
5.44% |
4.27% |
Expenses that can be claimed against the conclude mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telepmpany income include mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telephonnclude mileage charges, use of a room in your home as an office, computer and furniture costs, stationery, telephonry, telephonom your additional income.
This service and more is available for £125.
They can be contacted on 0141-334-3505 or by email to
ken@sjdaccountancy.com.
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