Advice needed, tax

[supadupapupascupa]

Hi there

I'm work for my DH and we pay ourselves a minimal wage and top up with dividends. At present that means both of us slip into into the higher rate tax band

I've been running a little hobby business and I need to set up as a sold trader to pay tax on the profits.

I'm confused. Our Ltd Company we pay tax on profits at 19% but then withdraw wages in which there is also tax and NI.
As a sold trader is this the same? Or is it profits taxed at personal tax rate assuming all profit is wages. What about NI?

I would talk to your accountant.

A friend thinks sole traders just pay income tax at their own rate (in this case 40%) no NI.

I will check with my accountant but I wanted to know now haha and thought someone here might know

Tax Adviser here - Sole trade profits are all taxed as income - there is no wages split etc as you’re entitled to every penny (whereas the limited company is the legal/beneficial owner of the income and you draw money out as wages / divis)

You will be subject to higher rate tax based on your current level of wages and dividends. Trade profits are subject to 2 types of NI. Class 2 and Class 4. (Both subject to thresholds being breached)

Also, in the order of how things are taxed - your sole trade profits are taxed before dividends. So your higher rate tax will be 32.5%(dividend rate) rather than 40%

Thank you!!! That's just what I wanted to know!