(1). Jocasta’s salary is not employment income but is merely part of her partnership profit share. Accordingly, she will only pay class 2 and class 4 National Insurance contributions. She will not have to pay class 1 National Insurance contributions.
(2). A company’s distributable profits are after the deduction of corporation tax. Accordingly, RFJ Ltd will have paid corporation tax at 19% on its profits. The first £5,000 of dividends received by Rakel will be taxed at 0% due to the dividend nil rate band. The remainder of the dividend income will be taxed at 32.5%.
| £ | ||
|---|---|---|
Corporation tax | ||
| £38,000 x (19/(100 – 19)) | 8,914 | |
Income tax | ||
(£38,000 – £5,000) x 32.5% | 10,725 | |
19,639 |
(3). The bonus and the related employer’s class 1 National Insurance contributions are deductible in arriving at the company’s taxable total profits.
| £ | ||
|---|---|---|
Bonus | 28,000 | |
Employer’s class 1 national insurance contributions (£28,000 x 13.8%) |
| |
31,864 | ||
Corporation tax deduction (£31,864 x 19%) |
| |
Post-tax cost | 25,810 |