Tx notes fa22 Final

June 2023 to March 2024 exams
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Illustration 2 
If Boris had a tax adjusted trading profit from his sole trader business of £60,000, compute the total 
tax charges that would be payable assuming that this is his only source of income for the tax year 
and using the 2022/23 tax rates and allowances.
If Boris had run his business as a company, Boris Ltd, instead of as a sole trader and the company 
had an adjusted trading profit of £60,000, compute the total tax charges that would be incurred by 
both Boris Ltd and Boris assuming that Boris Ltd had paid no salary to Boris but instead paid the 
maximum possible dividend from the company.
Boris Ltd
This will leave a distributable profit of £48,600 to be paid as a dividend after the corporation tax has 
been paid.
Income Tax Computation
Non 
Savings 
Total
£
£
Trading profit
60,000
60,000
PA
(12,570)
(12,570)
Taxable Income
47,430
47,430
Tax
37,700 @ 20%
7,540
9,730 @ 40%
3,892
Income Tax Liability
11,432
NIC
Class 2 (52 x £3.05)
=
159
Class 4 (50,270 – 9,568) x 9%
=
3,663
(60,000 – 50,270) x 2%
= 
195
4,017
15,449
Corporation Tax Computation
£
Trading Profit
60,000
TTP
60,000
CT liability @ 19%
11,400

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202
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June 2023 to March 2024 exams
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Boris 
No NIC would be payable by either Boris Ltd or Boris
The total combined tax liability will be £13,952 (11,400 + 2,552) and therefore a tax saving of £1,497
(15,449 - 13,952) would be achieved by running the business as a company.
Boris could also consider mixing the method of profit extraction from his company between the 
payment of a salary as well as the payment of a dividend. A salary payment would of course bring 
into consideration NIC that may have to be paid both by the employer Boris Ltd as well as by Boris 
the employee. This may be avoided however by keeping the salary level below the NIC thresholds for 
payment.
In our example let us now assume that Boris Ltd pays Boris a salary of £8,000 and then again 
removes all the distributable profit from the company in the form of a dividend,
Boris Ltd
This will leave a distributable profit to be paid as a dividend of £42,120 (52,000 – 9,880)
Income Tax computation
£
£