So have I got this right

[Mark Snowdon]

what I dont like

is that carry forward.

It looks to me as if anyone with retained profits should be looking at setting up another co, so that they can ensure nil profits while those retained profits are extracted.

Whats the mileage in setting up serial companies ?

[WWW ITDoctors co uk]

Re: what I dont like

I think I know where I have gone wrong in my calculation.
My scenario would only work if the dividend were delayed until the next tax year.

31st March and 1st April are obviously in the current tax year.

If your personal tax situation allows you to delay paying your dividend until after 5th April I think you could still be better off.

If you have already paid over £10k in dividend in this year the corporation tax rate on any additional dividend will be 23.75%

After 5th April however all dividends will be taxed at 19%, allowing a potential saving of 4.75% for a slightly delayed dividend.

Does this make sense ASB?

[ASB]

No

Mark,

The carry forward is a bummer. The argument is it is not retrospective taxation, because it affect furture taxation. This is, IMO, a spurious argument. I would venture that anyone with significant retained profits may be wise to cease trading through that vehicle.

ITD,

I think you still have some confusion. There is no way you can be better off deferring a dividend (caveat personal tax situation could make it so).

I think the root of your problem lies in this statement "If you have already paid over £10k in dividend in this year the corporation tax rate on any additional dividend will be 23.75%".

The additional dividends attract CT of NIL. CT is paid on profits.

So the level of dividend in the current year has no impact whatsoever on the current CT bill. If your profit is 40k there is no difference in CT if you pay divis of 10k or 40k (or even 250k if you have it).

From next year dividends are not taxed at 19% as such. It is simply (?) that the marginal rate of CT is 19% where dividends are paid out.

So, profit this year = 25k. CT = 3562.50. Dividends happend to be 10k.

Profit next year 25k. CT = 3562.50 (If dividends nil).

But next year if dividends were 10k then:-.

'Normal' CT would be: 3562.50 (10k @ 0 + 15k @ 23.75).
Marginal rate = 3562.50 / 15,000 = 14.250%

CT due:

10,000 @ 19% = 1900 (min 19% rate distributed profits)
15,000 @ 14.250% = 2137.50 (marginal rate on retained profits).

Total= 4037.50.

I hope this is now so clear as to be less than completely opaque!

Cheers.