So have I got this right

**Mark Snowdon** · 30 March 2004, 10:16

sort of...

depends when you invoice - the new rate starts in April

Mailman - you really do need to get an understanding of the difference between corporation tax and personal tax - someone did post a useful explaination for you on one of your other questions.

Are you intending to go back to NZ or stay in the UK ? It would make a difference to how you handle things.

Are you ir35 caught and operating through a brolly or are you a ltd company ?

**WWW ITDoctors co uk** · 30 March 2004, 12:16

Re: sort of...

I've been thinking about this new corporation tax.

My final dividend for 2003/4 was due to be declared on 31st March. As I have already earned over £10K in dividends this year, the rate of corporation tax on this dividend would be 23.75%.

If however, I delay the dividend declaration until 1st April when the new rules apply I think I will only have to pay 19%.

It looks to me like a 1 day delay in dividend declaration could save me a few hundred quid......or have I missed something?

**mailman** · 30 March 2004, 12:39

.

I am planning on staying in England until the end of our visa's at the least (4 years from Jan).

Im also operating as a limited company (through another company who looks after my tax issues).

Speaking of which I spoke to them this morning and it now appears clear that my dividends from March will not be affected by the change in tax. My original question was brought on by an article on the front page of this website that said payments from March would be subject to the new tax regime.

Regards

Mailman

**WWW ITDoctors co uk** · 30 March 2004, 12:43

Re: .

If you read the post above mailman you will see that the new regulations don't come into force until April 1st.

Do you know how to read mailman?

**mailman** · 30 March 2004, 15:20

god damn it...

why can one never think of a witty reply when one needs it?

Mailman

**WWW ITDoctors co uk** · 30 March 2004, 15:26

Re: god damn it...

witty reply + pun - no that's why your post never arrives:lol

**ASB** · 30 March 2004, 20:39

Yes

You have missed something.

Under the existing system:

Profit 10,001
CT = 23.75p

Under the new system

Profit 10,001
CT =23.75p

But if 10,000 paid as dividend CT = £1,900.2375.. The ruls is that the marginal rate on distributed profits is 19%.

TheFAQon the IR site is actually remarkably clear.

**WWW ITDoctors co uk** · 30 March 2004, 22:01

Re: Yes

So ASB if I have you correct

Today

£10k @ 0% = 0
£40k @ 23.75% = £9.5K
Total £9.5K

1st April (new rules)

£10K @ 19% = £1.9K
£40K @ 23.75% = £9.5K
Total £11.4K

Now the new rules are supposed to be neutral on £50K, which is £50K @ 19%

I'm not saying you are wrong just that your explanation makes no sense to me....well it is getting late

**ASB** · 31 March 2004, 09:48

Yes

you completely ignored the marginal rate. At no point did iI suggest that 10k was taxed at 19%. What I said was that 10k is taxed at nill at and 40k at 23.75 - exaclty as current. However there is a marginal rate of 19% applicable to all dividends.

All will be obvious (maybe) if you go to: www.inlandrevenue.gov.uk/.../qanda.htm

See question 6 and 7.

The two extremes are:-

50k profit 50k dividend, marginal rate 19%. Additional CT = 0.

10k profit 10k dividend, marginal rate = 0. Additional CT = £1900.

The impact of this is:-

- No dividends, no change.
- Profits in excess of 50k no change

Other circumstances there is an increased tax liability.

Also (if not yet asleep) is that you are in danger of paying up to 19% of any retained profitx in taxation :rolleyes

This is because any distribution in excess of profits is carried forward (this is by definition a distribution of retained profits) thus neatly getting all exisiting retained profits into this scheme.

By example, at the end of this year you have retained profits of 50k. Next year you make nil and distribute 30k.

Your CT bill will still be nil. It's profits that are taxed.

In each of the following 3 years you pay no dividends and earn a profit of 10k. Your tax bill for each of these 3 years will be 1900.

It is only the fact that you have distributed fully taxed money thay crystallise that liability.

The only way out is to ensure profits exceed 50k in the year after making a distribution or are in fact nil. However there will be no additional tax to pay if the business ceases to trade since it is reliant upon future profits being made to attract the tax liability.

Hope this is clear.

So have I got this right