You should assume that today’s date is 15 March 2014.

Fergus was born on 19 July 1971. He is currently self-employed, and if he continues to trade on a self-employed basis, his total income tax liability and national insurance contributions (NIC) for the tax year 2014–15 will be £33,985.

However, Fergus is considering incorporating his business on 6 April 2014. The forecast taxable total profits of the new limited company for the year ended 5 April 2015 are £100,000 (before taking account of any director’s remuneration). Fergus will pay himself gross director’s remuneration of £18,000 and net dividends of £40,000. The balance of the profits will remain undrawn within the new company.

Required:
Determine whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the year ended 5 April 2015 if Fergus incorporates his business on 6 April 2014.

Notes:
1. You are expected to calculate the income tax payable by Fergus, the class 1 NIC payable by Fergus and the new limited company, and the corporation tax liability of the new limited company for the year ended 5 April 2015.

2. You should assume that the rates of corporation tax remain unchanged.

(10 marks)