The Salary Calculator

Limited Company Tax Calculator added!

by Admin

Over on our sister site Employed and Self Employed, we now have a Limited Company Tax Calculator. If you are self employed through a limited company (as many people, like IT contractors, can be), then your tax is worked out differently from if you are just plain-old self employed. The limited company pays you a salary, which is typically quite small, and the rest of the company’s profits are paid to you in dividends (after the company has paid corporation tax), which are taxed at different rates from other income. The following graph shows you a comparison of how much income you get to take home as self employed or with a limited company (click on the image for a larger version).

As you can see, in this example (with typical values entered), the limited company approach allows you to take home more of your income. However, this does come at a cost – more paperwork is required for limited companies, including registering with Companies House and having your books prepared by an accountant. Accountant’s fees might eat up a significant amount of the difference in take-home, so it might not be worth switching from one to another. If you’re interested in being self employed as a limited company, speak to an accountant to find out if it is right for you.

To start performing tax calculations, check out the limited company tax calculator over at Employed and Self Employed.

Tags: corporation tax, dividend tax calculator, dividends, Employed and Self Employed, employer's NI, limited company, limited company calculator, Self Assessment, self employed

Changes to Child Benefit

by Admin

As you might have seen in the news, the government has introduced changes to who is eligible to receive Child Benefit, taking effect from 7th January 2013. If you or your partner earn over £50,000, the amount of Child Benefit you are eligible for will be reduced – and if one of you earns over £60,000 you will not be eligible to receive any Child Benefit. Those who are earning between £50,000 and £60,000 will have a choice to make before 7th January, since they can still keep some of the Child Benefit they are used to. You can either:

1. Opt out of Child Benefit, and stop receiving it from 7th January 2012
2. Choose to continue receiving Child Benefit, but pay a “High Income Charge” as an extra tax, effectively reducing their net Child Benefit. To do this, they must register for Self Assessment and complete a tax return each year

If you choose option 2, you will receive the same amount of Child Benefit as you currently do – but you will have to complete a tax return at the end of the tax year, and HMRC will levy an additional tax of some (or all) of the Child Benefit you received. This so-called “High Income Charge” is calculated as a proportion of where your total income comes between the £50,000 and £60,000 thresholds – e.g., if your income is £55,000, you will have to pay back 50% of the Child Benefit you receive. The income used is your “adjusted net income”, which is not simply your salary – you must add to this any additional income like interest paid on savings, and deduct eligible pension contributions. When you complete a tax return through Self Assessment, HMRC will work out your adjusted net income and the proportion of Child Benefit that you must repay. The High Income Charge will never be more than the Child Benefit you or your partner received. More information is available on HMRC’s High Income Child Benefit Charge page.

If you find yourself in the £50,000 – £60,000 income band, you have a limited amount of time to decide whether you are going to give up Child Benefit or register for Self Assessment (if you haven’t already) and pay the High Income Charge. To help you understand better how this will affect you, there is a government tool you can use to help decide what to do, which will guide you through the relevant points to consider.

Tags: April 2012, Child Benefit, High Income Charge, HMRC, January 2012, Self Assessment