Tutorial Questions
1
Amanda is a well recognised jewellery designer who (after the birth of her son) decided to leave her employer and set up her own business Funky Gems Ltd on 1 May 2013.
Funky Gems Ltd has a good reputation and has been a significant growth in both sales and profits over the past two years. During the tax year 2014/15 the business has generated a taxable profit of £260,000.
Amanda and her husband Matt are the sole shareholders in the business and hold the shares equally between them (50% each).
Amanda believes that having worked so hard to establish the business over the past two years that she can afford to withdraw some of the funds to treat themselves.
She believes that they can withdraw £180,000 (not already accounted for) from the business as they have sufficient reserves to allow Funky Gems Ltd to continue to grow and also pay any tax required.
She would like to withdraw the funds in the most tax efficient manner and is unsure if she should take a salary (she is the only employee of the business) or to pay the shareholders a dividend.
Amanda has no other income and Matt’s only additional income in the year is £16,200 (net) in dividends.
You are required to
Calculate the total tax liability for Amanda, Matt and Funky Gems Ltd if: i. Amanda withdraws £180,000 as a salary ii. Funky Gems Ltd pays £180,000 (net) as a dividend