Retained profit in the next financial year

[derekM]

So it appears you are saying I can simply pay out the retained profit as dividends which simply counts towards my earnings in the new tax year? Seems simple enough if that is the case, is my understanding correct?

And further to this, is it fair to say, in any given year, dividends can be extracted from "last years retained profit" + "this years profit"

[Nixon Williams]

And further to this, is it fair to say, in any given year, dividends can be extracted from "last years retained profit" + "this years profit"

The simple answer is yes!

However there are some examples where you may not have the cash in the company to payout all the retained profit as a dividend.

A simple example would be if you had say retained profits of £100,000 but had splashed out £25K on a company car, although the profits would still show at £100K, the cash available would now only be £75K - a simple example but hopefully it shows that profits are not always the same as cash in the bank!

Hope this helps.

Alan

[Stag Cozier]

Here are somethings to think about:

1. Are you married and does your spouse have employment income or is she a housewife (possibility of paying her divi's)

2. Insurances (can your company pay for the premiums - Speak to your FA or accountant)

3. Nothing stopping you taking more money out of the company as divi's if you need it. Just make sure you are aware of the personal tax implications.

4. If you don't need to go into the higher rate tax bracket leave it in the company, roll it over to the next tax year.

5. Can your company make investments? Stocks, bonds, gold, property etc...

6. Can you increase your pension contributions? Speak to your provider

[escapeUK]

I learn something new every day. If there is no corp tax to pay on retain profits, then I agree with this view.

Im not sure if you have misunderstood something there.

There are no additional taxes to pay if you are a basic rate tax payer as the corp tax you will already have paid on the profits retained or otherwise.

[derekM]

Here are somethings to think about:

1. Are you married and does your spouse have employment income or is she a housewife (possibility of paying her divi's)

Well aware, but do not want to go down income shifting route.

2. Insurances (can your company pay for the premiums - Speak to your FA or accountant)

What insurances are you talking about? my company already pays for various professional insurances.

3. Nothing stopping you taking more money out of the company as divi's if you need it. Just make sure you are aware of the personal tax implications.

4. If you don't need to go into the higher rate tax bracket leave it in the company, roll it over to the next tax year.

Well aware of these, mentioned them in my post - I was asking how retained profits are factored into the following years calculations.

5. Can your company make investments? Stocks, bonds, gold, property etc...

Nope, don't want company reclassified as an investment vehicle.

6. Can you increase your pension contributions? Speak to your provider

Not planning to!

Thanks for putting so much thought into your post, much appreciated!

[pmeswani]

Im not sure if you have misunderstood something there.

There are no additional taxes to pay if you are a basic rate tax payer as the corp tax you will already have paid on the profits retained or otherwise.

My apology, you are indeed correct. I was primarily looking at the response from the business tax point of view, rather than from a personal tax point of view.

[Stag Cozier]

What insurances are you talking about? my company already pays for various professional insurances.

Nope, don't want company reclassified as an investment vehicle.

Life insurance. As a possibility you could also consider critical and sick pay packages (although, these will create a benefit in kind issue unless the company is the beneficiary).

It's unlikely that your company will be classed as an investment vehicle unless you plan to investment more than 20%.

[QwertyBerty]

And further to this, is it fair to say, in any given year, dividends can be extracted from "last years retained profit" + "this years profit"

At the start of each financial year "last year's retained profit" becomes the opening balance for the new year's retained profit. Therefore there's no need to keep referring to "last years retained profit"... you simply look at retained profit now and draw your dividends against that.

QB.

[derekM]

At the start of each financial year "last year's retained profit" becomes the opening balance for the new year's retained profit. Therefore there's no need to keep referring to "last years retained profit"... you simply look at retained profit now and draw your dividends against that.

QB.

smashing, thanks!