Corp Tax and Dividends

[silicondale]

23.75%

ghoshd - you're quite right that this figure hasn't been quoted as a tax rate anywhere. However, there is a numerical equivalence. The actual small-company tax rates are

For £10,000 or less --- zero
For £50,000 or more --- 19%
For anything between £10,000 and £50,000 --- a sliding scale between 0% and 19% computed on the WHOLE of the chargeable profit. The official way to compute this is to calculate 19% of the total chargeable profit, and then subtract an amount for the difference D between £50,000 and the actual profit. This amount is D*19/400 or whatever (I can't be bothered to look it up!).

Exact mathematical equivalent is simpler, as follows:-

First £10,000 --- zero
Between £10,000 and £50,000 --- 23.75% on anything within this slice
£50,000 and above --- 19%.

You'll see that if you make £50,000 or more, 23.75% of the £40,000 slice is equal to 19% on the first £50,000 so by then you're just paying 19% on the lot.

[mailmannz]

Re: 23.75%

the first £10k being free is no longer the case. It was stamped out in this years budget.

Mailman

[silicondale]

Not so

mailmannz - That's not true. There is still a £10,000 zero CT starting band. Sluggo didn't abolish that because he was afraid of people saying he'd made a U-turn or that the zero rate was a mistake in the first place.

Provided that you don't take it out as dividends, the corporation tax calculation stays exactly as it was before, and as I explained earlier.

It's only if you try and get the money as dividends that they slug your company with the new extra tax.And the new tax is so complicated ONLY because it was the only way Sluggo and Dim Prawn (or rather their hired hands in the IR) could work out to claw back the money while appearing to be 'encouraging' small business. It's all spin - at our expense.

[mailmannz]

Re: Not so

Aye?

So whats the point of having a zero percent tax band if the minute you touch money you get pinged 20%?

How does that work and more importanytly...how can one get their greasy mits on the money and pay no tax?

Mailman

[Martin Underwood]

0% starting rate

Mail man:

What you need to realise is that the zero percent starting rate was introduced to help small-businesses expand, by allowing them to reinvest their profits in the company. Since the side-effect of this leglislation was to allow all sorts of sole-trader types to incorporate and effectively take out 10 grand tax free as dividends, the leglislation was tightened up.

If you're a genuine business, which makes a small profit, but you need to keep that money in the company to... you know? ... expand... the business, then the zero percent is a godsend. If, as the director of the company, you decide to squander your profit by taking it out as a dividend to spend personally, then you'll be taxed.

Simple as that, really.

[mailmannz]

Re: 0% starting rate

Ah...so as long as its spent on things for the company like computers and sheeeet you wont pay any tax on it...apart from VAT if you are VAT registered.

Have I got that right?

Mailman

[ASB]

Re: 0% starting rate

Fraid not mailmanz. The things you mentioned are capital items so they do not have the affect of reducing the companies profit (directly) and consequeny lowering of the CT payable. [They have the affect over a number of years due to capital allowances].

If you had a 20k profit and spent 10k on computers you still got a 20k profit [Actually 15k due to first year capital allowances].

If you had a 20k profit and increased salarys by 10k you would only have a 10k profit since this is an expense.

Hopefully you are now completely confused ...:-)

[ghoshd]

Not 0% starting rate

Can somebody provide the simple calculation as the one for CT with zero starting rate when the money is not being retained in company and taken as dividends. How it would be taxed then.

mathematical equivalent:
First £10,000 --- ?
Between £10,000 and £50,000 ?
£50,000 and above --- ?

cheers,
Jarek

[mailmannz]

Re: Not 0% starting rate

HAHA! :rollin

Ok...if the money is sitting in your business account do you pay CT tax on it then? I would have thought not?

Wouldnt you only pay tax on it when you distribute it through salaries and dividends?

If not then arent you paying CT twice...once when the money is sitting in your business account and then again when you disburse the money through dividend payment? :x

Mailman

[xoggoth]

Re: Not 0% starting rate

You pay CT on profits, so does not matter of you distribute it or not. Just that if you do you pay a minimum of 19% rather than the lower rates you might pay on small profits. (Zero below 10k).

What else has bastard Brownstuff got in store for "rich" non-service owner director companies like mine that barely takes 10k a year I wonder?

Beat me why anyone ever bothers. We should all be swamp donkeys and let these fantastic immigrants take care of us as we are assured they are going to take care of our elderly.