Tx notes fa22 Final

Dividends
Total
Dividends
48,600
48,600
PA 
(12,570)
(12,570)
Taxable Income
36,030
36,030
Tax
Dividends
2,000 @ 0%
0
34,030 @ 7.5%
2,552
2,552
Corporation Tax Computation
£
Trading Profit (60,000 – 8,000)
52,000
TTP
52,000
CT Liability @ 19%
9,880

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Boris
A salary of £8,000 will not require any NIC to be paid.
The total combined tax liability will now be only £12,542 (9,880 + 2,662), an additional saving of 
£1,410 (13,952 - 12,542) compared to extracting the profits of the company entirely in the form of a 
dividend.
Incorporation will offer the prospect of even more considerable annual tax savings when the 
business profits rise, such that an unincorporated trader would suffer a significant 40% higher rate 
tax burden and even an additional rate charge at 45% as he is assessed on the tax adjusted trading 
profit of the business irrespective of the level of drawings made by the business owner. If the 
company makes a higher profit. however, it will only suffer tax at 19% on its profits, while the 
business owner will only suffer a personal tax charge on the amount of that profit that they choose to 
extract in the form of either a salary or dividend payment.
Thus the owner managed company may retain profits and allow the business owner to avoid the 
immediate higher rate tax charges that would otherwise have been charged if the business had been 
run as an unincorporated trade.
Incorporation however will inevitably involve higher compliance costs as compared to the freedoms 
of operation allowed to the unincorporated trade.
Income Tax Computation