(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 £1,000 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 33.75%.
| £ |
|
|---|---|
Corporation tax | |
| £28,000 x (19/(100 – 19)) | 6,568 |
Income tax | |
(£28,000 – £1,000) x 33.75% | 9,113 |
15,681 |
(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 |
| |
31,864 | ||
Corporation tax deduction (£31,864 x 25%) | (7,966) | |
Post-tax cost | 23,898 |