Reference no: EM132936302

Question - You should assume that today's date is 15 March 2020. Buck Star is the managing director of, and 100% shareholder in, Frothy-Coffee Ltd. For the tax year 2019/20 Buck will have director's remuneration of £51,000 from FrothyCoffee Ltd. On 25 March 2020 he wishes to withdraw a further £50,000 from the company, either as additional director's remuneration (the gross remuneration will be £50,000) or as a dividend.

Frothy-Coffee Ltd prepares its accounts to 31 March. The company's total taxable profits for the year ended 31 March 2020 will be £250,000 on which the corporation tax liability will be £47,500. This figure is after deducting the director's remuneration of £51,000, but before taking account of the additional £50,000 to be withdrawn from the company. Buck has no other income from any sources during the tax year 2019/20.

Required -

(a) Calculate the additional income tax liability and national insurance contributions that Buck will have for the tax year 2019/20 if he

1. withdraws additional gross director's remuneration of £50,000, or

2. extracts a dividend of £50,000

(b) Calculate Frothy-Coffee Ltd.'s additional national insurance contributions and its corporation tax liability for the year ended 31 March 2020 if the company

1. pays additional gross director's remuneration of £50,000, or

2. pays a dividend of £50,000.

(c) Based on your calculations in parts (a) and (b) show the total tax cost of withdrawing the £50,000 from Frothy-Coffee Ltd as additional director's remuneration or as a dividend.