The following scenario relates to two requirements. You should assume that today’s date is 1 March 2022. Sarah is currently self-employed. If she continues to trade on a self-employed basis, her total income tax liability and national insurance contributions (NIC) for the tax year 2022-23 will be £12,631. However, Sarah is considering incorporating her business on 6 April 2022. The forecast taxable total profits of the new limited company for the year ended 5 April 2023 will be £50,000 (before taking account of any director’s remuneration). Sarah will pay herself gross director’s remuneration of £30,000 and dividends of £10,000. The balance of profits will remain undrawn within the new company. (a) Determine whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the year ended 5 April 2023 if Sarah incorporates her business on 6 April 2022. Notes: 1. You are expected to calculate the income tax payable by Sarah, the class 1 NIC payable by Sarah and the new limited company, and the corporation tax liability of the new limited company for the year ended 5 April 2023. 2. The new limited company will not be entitled to the NIC annual employment allowance. 3. You should assume that the rates of corporation tax remain unchanged. (8 marks) give the answer according to updated UK tax law rules and Acca F6 Taxation (UK) syllabus and Acca F6 Taxation (UK) examiner report and ACCA Taxation UK syllabus and please check before giving me the answer.

To determine whether there will be an overall saving of tax and NIC for Sarah if she incorporates her business, we need to calculate the tax and NIC liabilities in both scenarios. As a self-employed individual for the tax year 2022-23, Sarah's liability is £12,631. If Sarah incorporates her business: 1. Corporation Tax on Company Profits: The forecast taxable profits are £50,000. Assuming the corporation tax rate is 19% (as it was for the financial year starting April 2022), the corporation tax would be: £50,000 * 19% = £9,500 2. Director's Remuneration: Sarah will pay herself a gross salary of £30,000. This will be an allowable expense for the company, reducing the taxable profit for corporation tax purposes. However, Sarah and the company will have to pay Class 1 NIC on this salary. As of the tax year 2022-23, the Class 1 NIC rates are as follows: - Employee's NIC (primary threshold to upper earnings limit): 12% - Employer's NIC (secondary threshold to upper secondary threshold for under 21s): 13.8% Sarah's salary is above the primary threshold (£9,880 for 2022-23), so she will pay 12% on the amount between the primary threshold and the upper earnings limit (£50,270 for 2022-23). Employee's NIC: (£30,000 -

Get Started

Get your tax questions answered