Dividends and CT

[Bill]

To start, thanks to everyone who helped me re-write my CV last year. It has now landed me a contract, not the best in terms of distance and rate, but work is work and hopefully its the first of many.

Now onto to my questions. First one is going to sound like a sily question and I've done loads of digging around but cannot find a definitive answer.
Q1. If I make X amount and want to pay dividends, is it payed after CT?? and do I have to provide a share certificate??? If so, whats in the cert, just the share amount and tax credit amount???

Q2. I am signed up for FRS. There will always be a difference in the amount charged and the amount I owe for VAT. Is the VAT amount charged on all of turnover(including vat), and is then the amount I pay back just a percentage of that, OR do I only pay the FRS percentage of the invoice amount not including the VAT, in which case, what about the difference??? Is that just mine, or liable to CT.
(that alsmost confused me typing it, but hopefully makes sense.

[Solidec]

mate, seriously, get an accountant, else you WILL balls up somewhere!

[Hex]

To start, thanks to everyone who helped me re-write my CV last year. It has now landed me a contract, not the best in terms of distance and rate, but work is work and hopefully its the first of many.

Now onto to my questions. First one is going to sound like a sily question and I've done loads of digging around but cannot find a definitive answer.
Q1. If I make X amount and want to pay dividends, is it payed after CT?? and do I have to provide a share certificate??? If so, whats in the cert, just the share amount and tax credit amount???

Q2. I am signed up for FRS. There will always be a difference in the amount charged and the amount I owe for VAT. Is the VAT amount charged on all of turnover(including vat), and is then the amount I pay back just a percentage of that, OR do I only pay the FRS percentage of the invoice amount not including the VAT, in which case, what about the difference??? Is that just mine, or liable to CT.
(that alsmost confused me typing it, but hopefully makes sense.

Dividends are paid out of net profits. You take all of the company income. You take off all of the expenses. Then you work out the Corporation tax you owe on the balance at 21%. What is left is then net profit which can be distributed as dividends or retained within the company.

I don't think you really need a share certificate but you can prepare one if you like.

VAT example
You invoice your customer £100 + VAT (which is currently 15%) so the invoice is for £115.

You pay your FRS VAT at the rate of 10.5% in year 1 (11.5% after) if you are in IT. So you owe that VAT man £115 * 0.105 = £12.075. So you keep £102.925.

This £102.925 is part of your company turnover and is liable to Corporation Tax.

[Hex]

I think that when you are talking about a Share cert you actually mean a dividend counterfoil. If so, then it is best to prepare one.

If you pay yourself a dividend for £90 then your dividend counterfoil will show a gross dividend of £100, net dividend of £90 and a tax credit of £10.

[Archangel]

To start, thanks to everyone who helped me re-write my CV last year. It has now landed me a contract, not the best in terms of distance and rate, but work is work and hopefully its the first of many.

Now onto to my questions. First one is going to sound like a sily question and I've done loads of digging around but cannot find a definitive answer.
Q1. If I make X amount and want to pay dividends, is it payed after CT?? and do I have to provide a share certificate??? If so, whats in the cert, just the share amount and tax credit amount???

Q2. I am signed up for FRS. There will always be a difference in the amount charged and the amount I owe for VAT. Is the VAT amount charged on all of turnover(including vat), and is then the amount I pay back just a percentage of that, OR do I only pay the FRS percentage of the invoice amount not including the VAT, in which case, what about the difference??? Is that just mine, or liable to CT.
(that alsmost confused me typing it, but hopefully makes sense.

Q1 You deduct any expenses (including VAT out, PAYE, wages etc) from the gross turnover, this is the profit. The company pays CT on the profit. What is left can be paid as a dividend and is deemed to have a tax credit of 10% of the gross dividend. A tax certificate should be issued to each shareholder detailing:
The Gross. net and tax credit
The dividend should be decided on at a baord meeting which should be minuted and the minutes kept.

Q2 is probably covered by the reply above, but it really is quite simple,

If not on FRS:
for £100 of services supplied, add VAT at 15%, charge client £115, so £15 is the VAT due
Subtract any Vat paid from allowable expenses (so if say the company purchased a box of paperclips, value £10 + vat of £1.15)
net vat due = £15 - £1.15, pay VAT man £13.85

For FRS,
for £100 of services supplied, add VAT at 15%, charge client £115
turnover = £115

calculate VAT at flat rate on VAT inclusive turnover (say 10.5% depending on secter and 1% discount for first year of registartion)
£115 x 10.5% = £12.07
No VAT reclaimable on expenses unless a capital expense > £2000
so pay the VAT man £12.07

The difference between £13.85 and £12.07 is added to the comnpany's profits as a "reward" for o[perating the FRV scheme.

HTH

[Bill]

thanks for the replies, I now understand. I will be using an accountant, but I like to atleast understand for myself. I don't like to trust other people with something I am still liable for.
Will wait until end of march to sort out dividends to make the most of personal tax for this year as not worked this tax year yet.

[manstein]

When I first started out contracting I just left everything up to the accountant and read up on stuff as time passed.

At the start it all seemed really complicated, when to pay myself expenses, what to claim for, when to deduct them, dividends and when to pay them, how much to take for a salary, how much to keep back for corporation tax, what FRS rate should I be enrolled at, splitting dividends with my wife, employing her, how much employee's & employer's NI I should be paying, how much dividends I can take before starting to effect my personal tax bill and a hundred other things. This is before even thinking about things like IR35 and how should I have insurance for it.

As time goes by though you pick up a little knowledge and a titbit there and it's not really as complicated as it seems.

One mistake I made was (as already mentioned above) any 'profit' I made from FRVS I thought you could just pocket it as it was separate somehow but it needs to be taken as a dividend and so is liable to corporation tax and possibly personal if you are already above the threshold.

Another mistake I made was that my original accountants never advised me about the upper limit for dividends but simply kept on paying me the full amount from each invoice (minus 21% CT) then I got landed with a hefty personal tax bill at my Self Assessment - was actually a double whammy as not only did I have a shortfall from that tax year they assumed I would do the same next year so doubled the amount!

[Hex]

I will be using an accountant, but I like to atleast understand for myself. I don't like to trust other people with something I am still liable for.

Very wise