How much should I be putting aside for my tax?

This is a question that’s often asked, and the answer is it really depends on how much you are earning.

Assuming you are trading as a limited company, you need to distinguish between corporation tax and self-assessment tax when putting funds aside for your liabilities.

The minimum you should leave in the company is any VAT charged plus 20% of the net sales, so that you can meet the VAT and Corporation Tax liabilities.  However, remember that everything you withdraw from the company then becomes taxable by yourself, so you will also need to put aside funds from the amount you withdraw from the company.

The normal set up is that your minimum salary is declared each month via payroll (£8,628p.a. for 2019/20) and anything above and beyond that will be a dividend.  Again for the tax year 2019/20, dividends up to an overall income level of £50k are taxed at 7.5% and any amounts over that level are taxed at 32.5%.  So I’d recommend putting aside (as a minimum) 10% of everything you withdraw from the company unless you are withdrawing more than £4,200 per month, in which case you’d need to be putting aside an extra 22.5% to cover the additional tax on the higher rate.

Leave a Reply

Your email address will not be published. Required fields are marked *