Calculating tax exposure in Excel

[StartupDreamer]

Hi all,

I’ll start by saying I do have an accountant, but I’d like to be in a position of having a live spreadsheet forecast of my corporation & personal tax liabilities for my 2 person consultancy company.

My current understanding is as follows;

Corporation tax
Revenue minus outgoings (pension & expenses), multiplied by 25% = corporation tax.

Personal tax per person
0% on salary upto £12570
20% from £12571 upto £50270
8.8% charged on dividends, upto £37700
Would this mean that on a £80,000 take home, I could pay;

£7,539.80 on the salary
£2,616.24 on the dividends
£10,156.04 total?

Thanks in advance,
Ian

 

[Bobbo]

No.

Several errors:

- your dividend "8.8% up to 37700" (actually 8.75%) represents the same 37,700 banding as the 20% on salary between 12,570 and 50,270.

- the tax on the salary omits national insurance

- omits dividend allowance

- no consideration of employer's national insurance which may be relevant to salary

- you talk about an 80,000 take home but when calculating the 'best' allocation between salary and dividends you need to consider corporation borne by the company, so it is best to start with an amount of pre-tax profit in the company and go from there.


Think your 'live spreadsheet' is a fair way off.

 

[DWS]

Agree with Bobbo, your spreadsheet needs a fair amount of working on, if you have an Accountant why are you not asking for their advice? that is what they are there for!

 

[StartupDreamer]

Thanks.

Can you expand on this point please;
- you talk about an 80,000 take home but when calculating the 'best' allocation between salary and dividends you need to consider corporation borne by the company, so it is best to start with an amount of pre-tax profit in the company and go from there.

 

[MyAccountantOnline]

Hi all,

I’ll start by saying I do have an accountant, but I’d like to be in a position of having a live spreadsheet forecast of my corporation & personal tax liabilities for my 2 person consultancy company.

My current understanding is as follows;

Corporation tax
Revenue minus outgoings (pension & expenses), multiplied by 25% = corporation tax.

Personal tax per person
0% on salary upto £12570
20% from £12571 upto £50270
8.8% charged on dividends, upto £37700
Would this mean that on a £80,000 take home, I could pay;

£7,539.80 on the salary
£2,616.24 on the dividends
£10,156.04 total?

Thanks in advance,
Ian

@StartupDreamer what software are you using for your bookkeeping? Some software will calculate the approximate Corporation tax liabilities for you automatically. FreeAgent is one which I recommend to clients.

Corporation tax rates start at 19%, a company will only pay 25% on profits over £250,000. You also need to take into account Capital allowances that can significantly effect Corporation tax.

Have you discussed tax efficient salaries with your accountant?

 

[Bobbo]

Thanks.

Can you expand on this point please;
- you talk about an 80,000 take home but when calculating the 'best' allocation between salary and dividends you need to consider corporation borne by the company, so it is best to start with an amount of pre-tax profit in the company and go from there.

I missed the word "tax" between corporation and borne, oops.

Generally speaking, a salary paid by the company would be deductible from its profits for tax purposes. So, ignoring NIC for the moment, to pay a salary of 80,000 a company would need 80,000 of profit pre-salary.
A dividend however is paid from post tax profits. So to pay a dividend of 80,000 a company would need, using the main 25% rate for simplicity, 100,000 pre-tax profit.