Hello,
I have a query regarding self-employed income as a sole trader versus limited company. This would be my second income, and I am trying to understand the total tax applicable.
As a limited company:
Personal income
Wage (not from company): £47,000
Dividend income: £35,000
Total: £82,000
Less: Dividend allowance -£500
Less: Personal Allowance -£12,570
Subtotal: £68,930
Company profit: £40,000
Tax:
Wages: (47,000 - 12,570) *20% income tax = £6886
Dividends: 3,270 at *8.75% basic rate and 18,660 at *33.75% higher rate. = £6583.88
Company profit: 40,000 *19% corporation tax = £7,600
Total = £21,069
My understanding is for the company and shareholder receiving dividends there is tax effectively applied at two points - first 19% for total profits (which is calculated prior to dividend payments), and then dividends are taxed depending on the shareholders personal income tax band which also includes income from other sources, so in this case partly 8.75% and then 33.75%. Is this correct?
Is the same total taxed twice (with the company director being a shareholder recipient of dividends)? And does the dividend tax band depend on total personal income (i.e., start from the total income tax band) or start from the basic 8.75% regardless?
As a sole trader:
Personal income
Wages: £47,000
Sole trader income: £35,000
Total: £82,000
Tax:
(50,270 - £12,570 personal allowance) at 20% and 18,660 at 40% = 7540 + 7464 = £15,004 total
Many thanks in advance for any guidance and advice.
