Taxation of the unincorporated business for ATX (UK) - part 2: self-test answers

Test your understanding: answers

(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 £2,000 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 – £2,000) x 32.5%

11,700

 

20,614

(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%)


3,864

 
 

31,864

 

Corporation tax deduction (£31,864 x 19%)


(6,054)

 

Post-tax cost

25,810