GPT based average UK Taxes for an IT contractor

When an IT contractor in the UK runs a Limited (LTD) company, the tax situation changes. The contractor can pay themselves a salary and take the rest as dividends, which can be more tax-efficient. Let's break this down, including corporate tax and average expenses.

Assumptions:

• Annual revenue: £160,000

• Annual expenses: £20,000

• Salary: £12,570 (to use personal allowance)

• Dividend distribution of remaining profits

• Corporate tax rate: 19%

• Personal tax rates for dividends

1. Company's Gross Profit

Revenue:

• £160,000

Expenses:

• £20,000

Net Profit before Tax: £140,000

2. Corporation Tax

• £140,000 * 19% = £26,600

Net Profit after Tax: £113,400

3. Salary and Dividends

Salary:

• £12,570 (covers personal allowance, no income tax or NICs on this amount)

Dividends:

• Net Profit after Tax - Salary = £113,400 - £12,570 = £100,830

4. Personal Taxes on Salary and Dividends

Salary:

• £12,570 (no tax, falls under personal allowance)

Dividends Tax:

• First £1,000 of dividends: 0% (Dividend Allowance)

• Next £37,700: 8.75%

• Next £62,130: 33.75%

Breakdown of Dividend Tax:

• First £1,000: 0% = £0

• Next £37,700: 8.75% = £3,298.75

• Remaining £62,130: 33.75% = £20,974.88

Total Dividend Tax: £24,273.63

5. Total Taxes and NICs

• Corporation Tax: £26,600

• Dividend Tax: £24,273.63

Total Taxes: £50,873.63

6. Take-Home Pay

Salary:

• £12,570

Dividends after Tax:

• £100,830 - £24,273.63 = £76,556.37

Total Take-Home Pay: £12,570 + £76,556.37 = £89,126.37

7. Monthly Breakdown of Payments

Monthly Gross Revenue:

• £160,000 / 12 months = £13,333.33

Monthly Net Revenue (after expenses):

• (£160,000 - £20,000) / 12 months = £11,666.67

Monthly Take-Home Pay:

• £89,126.37 / 12 months = £7,427.20

Summary

• Annual Gross Revenue: £160,000

• Annual Expenses: £20,000

• Net Profit before Tax: £140,000

• Corporation Tax: £26,600

• Dividend Tax: £24,273.63

• Total Taxes: £50,873.63

• Annual Take-Home Pay: £89,126.37

• Monthly Gross Revenue: £13,333.33

• Monthly Take-Home Pay: £7,427.20

This scenario demonstrates how running an LTD company can be more tax-efficient for an IT contractor in the UK. The contractor benefits from lower personal tax rates on dividends compared to a sole trader setup.

Reality expenses go up to 65k not including the taxes ( rent , salary,mashups )

If the annual expenses for the IT contractor running an LTD company are £65,000 instead of £20,000, we need to adjust the calculations accordingly.

Assumptions:

• Annual revenue: £160,000

• Annual expenses: £65,000

• Salary: £12,570 (to use personal allowance)

• Dividend distribution of remaining profits

• Corporate tax rate: 19%

• Personal tax rates for dividends

1. Company's Gross Profit

Revenue:

• £160,000

Expenses:

• £65,000

Net Profit before Tax: £95,000

2. Corporation Tax

• £95,000 * 19% = £18,050

Net Profit after Tax: £76,950

3. Salary and Dividends

Salary:

• £12,570 (covers personal allowance, no income tax or NICs on this amount)

Dividends:

• Net Profit after Tax - Salary = £76,950 - £12,570 = £64,380

4. Personal Taxes on Salary and Dividends

Salary:

• £12,570 (no tax, falls under personal allowance)

Dividends Tax:

• First £1,000 of dividends: 0% (Dividend Allowance)

• Next £37,700: 8.75%

• Remaining £25,680: 33.75%

Breakdown of Dividend Tax:

• First £1,000: 0% = £0

• Next £37,700: 8.75% = £3,298.75

• Remaining £25,680: 33.75% = £8,664.00

Total Dividend Tax: £11,962.75

5. Total Taxes and NICs

• Corporation Tax: £18,050

• Dividend Tax: £11,962.75

Total Taxes: £30,012.75

6. Take-Home Pay

Salary:

• £12,570

Dividends after Tax:

• £64,380 - £11,962.75 = £52,417.25

Total Take-Home Pay: £12,570 + £52,417.25 = £64,987.25

7. Monthly Breakdown of Payments

Monthly Gross Revenue:

• £160,000 / 12 months = £13,333.33

Monthly Net Revenue (after expenses):

• (£160,000 - £65,000) / 12 months = £7,916.67

Monthly Take-Home Pay:

• £64,987.25 / 12 months = £5,415.60

Summary

• Annual Gross Revenue: £160,000

• Annual Expenses: £65,000

• Net Profit before Tax: £95,000

• Corporation Tax: £18,050

• Dividend Tax: £11,962.75

• Total Taxes: £30,012.75

• Annual Take-Home Pay: £64,987.25

• Monthly Gross Revenue: £13,333.33

• Monthly Take-Home Pay: £5,415.60

This revised scenario takes into account the higher annual expenses, resulting in lower net profit and consequently lower take-home pay.

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Imported from rifaterdemsahin.com · 2024