(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 20% on its profits. Rakel will then pay income tax at an effective rate of 25% on the dividend received 100/90 x (32.5% – 10%) = 25%).
| £ | ||
|---|---|---|
Corporation tax | ||
| £38,000 x (20/(100 – 20)) | 9,500 | |
Income tax | ||
£38,000 x 25% | 9,500 | |
19,000 |
(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 20%) |
| |
Post-tax cost | 25,491 |