Retained profit in the next financial year

[derekM]

First post, please be gentle (I'll answer all gladiator, chutney type newbie questions in General next!)

I've done a search and read the first timers articles, but still not sure on the following.

I've just completed my 2nd financial year with my Ltd co. At the end of this year I have a large amount of money still in the business, after corp tax (still to be paid).

Now, I know that I can pay myself dividends out of the remainder left after Money Invoiced - expenses, and after corp tax.

I have not hit the upper tax limit yet, so I could declare a dividend and pay the tax on it, or I could leave it in the company.

If I leave it in the company, how exactly does this factor into this financial years calculations?

This year, I'll calculate Invoiced - expenses, figure out my corp tax owed and have a figure, X that is available for dividends, but where does last years remainder fit?

Sorry for the very woolly question - tin hat on!! <ducks>

thanks in advance! (this wasn't an issue last year as the was no remainder!!)

ps. I've asked my accountant, and got a very basic response from one of his minions about closing down my Ltd co, and only paying 10% tax, I'm assuming they mean entrepreneurs relief? (she didn't know) Going to speak to accountant directly next week when he is back from his hols.

[pmeswani]

First post, please be gentle (I'll answer all gladiator, chutney type newbie questions in General next!)

I've done a search and read the first timers articles, but still not sure on the following.

I've just completed my 2nd financial year with my Ltd co. At the end of this year I have a large amount of money still in the business, after corp tax (still to be paid).

Now, I know that I can pay myself dividends out of the remainder left after Money Invoiced - expenses, and after corp tax.

I have not hit the upper tax limit yet, so I could declare a dividend and pay the tax on it, or I could leave it in the company.

If I leave it in the company, how exactly does this factor into this financial years calculations?

This year, I'll calculate Invoiced - expenses, figure out my corp tax owed and have a figure, X that is available for dividends, but where does last years remainder fit?

Sorry for the very woolly question - tin hat on!! <ducks>

thanks in advance! (this wasn't an issue last year as the was no remainder!!)

ps. I've asked my accountant, and got a very basic response from one of his minions about closing down my Ltd co, and only paying 10% tax, I'm assuming they mean entrepreneurs relief? (she didn't know) Going to speak to accountant directly next week when he is back from his hols.

How about putting the money into a Self-Invested Pension Plan as an employer contribution?

[derekM]

I already do pay employer contribs into a SIPP, but not quite that much !!

[Hex]

First post, please be gentle (I'll answer all gladiator, chutney type newbie questions in General next!)

I've done a search and read the first timers articles, but still not sure on the following.

I've just completed my 2nd financial year with my Ltd co. At the end of this year I have a large amount of money still in the business, after corp tax (still to be paid).

Now, I know that I can pay myself dividends out of the remainder left after Money Invoiced - expenses, and after corp tax.

I have not hit the upper tax limit yet, so I could declare a dividend and pay the tax on it, or I could leave it in the company.

If I leave it in the company, how exactly does this factor into this financial years calculations?

This year, I'll calculate Invoiced - expenses, figure out my corp tax owed and have a figure, X that is available for dividends, but where does last years remainder fit?

Sorry for the very woolly question - tin hat on!! <ducks>

thanks in advance! (this wasn't an issue last year as the was no remainder!!)

ps. I've asked my accountant, and got a very basic response from one of his minions about closing down my Ltd co, and only paying 10% tax, I'm assuming they mean entrepreneurs relief? (she didn't know) Going to speak to accountant directly next week when he is back from his hols.

Last year's "remainder" is retained profit. You can keep it in the company coffers indefinitely and pay it out as a dividend later if you wish when your circumstances may change, or you can close the company down and pay it out as a final capital distribution (which is the 10% thing you mention).

[northernladuk]

First post, please be gentle (I'll answer all gladiator, chutney type newbie questions in General next!)

Gotta respect that. More effort in an amusing post that most of us seasoned guys can do. Love it.

Question I would ask first of all is... 'Do you need this money?' if not why not just let it accumulate. There will be a time where are not earning for one reason or another, you can then continue to divi yourself even though you are not earning to balance it out in the future. If not it just accumulates until you do decide to shut the company down and claim it.

I can't see much reason to worry about it unless you need it. There have been many discussion about investing it, paying off mortgages etc etc and at the moment all these seem to come to nothing for one reason and another.
I have just left it for a rainy day to be honest.

[Platypus]

This year, I'll calculate Invoiced - expenses, figure out my corp tax owed and have a figure, X that is available for dividends, but where does last years remainder fit?

I'm not an accountant, so don't know all the terminology, but it will sit in the company as retained profit. It won't be used to calculate corporation tax due (because it's already had tax paid on it), nor turnover and so on. It will essentially be invisible as far as this year's accounts are concerned.

i.e. it won't feature on the Profit & Loss, but rather it's a line on the Balance Sheet (the cash is a company asset).

[derekM]

Gotta respect that. More effort in an amusing post that most of us seasoned guys can do. Love it.

Question I would ask first of all is... 'Do you need this money?' if not why not just let it accumulate. There will be a time where are not earning for one reason or another, you can then continue to divi yourself even though you are not earning to balance it out in the future. If not it just accumulates until you do decide to shut the company down and claim it.

Ok, so yes, I think I'd probably like to get at least some out - it's not desperate or anything, but knocking a large chunk off my mortgage would be nice!

That aside, your statement "continue to divi yourself even though you are not earning to balance it out in the future" intrigues me.

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?

many thanks for all the answers by the way!

[pmeswani]

I already do pay employer contribs into a SIPP, but not quite that much !!

Ok. I don't know how much (nor do I want to know) you have in your business, but unless it exceeds the annual limit, you can put in as much employer contributions as you like. (And if I am wrong, apologies in advance!).

Personally I wouldn't close down the business unless there were no other alternatives. If your accountant does recommend taking out dividends, then providing there is no additional corp tax (or any other tax) to pay, then go for it.

I don't know the rules and regs about buying property through the business (for example buy-to-let or commercial property), but maybe that could be an option (especially if you have enough money in the bank to pay for the it)?

I don't know if this would help with IR35 at all (Having more than 1 client, etc). I know someone who has property on his business books, don't know the ins and outs myself.

Maybe an idea you may want to discuss with your accountant?

[pmeswani]

Gotta respect that. More effort in an amusing post that most of us seasoned guys can do. Love it.

Question I would ask first of all is... 'Do you need this money?' if not why not just let it accumulate. There will be a time where are not earning for one reason or another, you can then continue to divi yourself even though you are not earning to balance it out in the future. If not it just accumulates until you do decide to shut the company down and claim it.

I can't see much reason to worry about it unless you need it. There have been many discussion about investing it, paying off mortgages etc etc and at the moment all these seem to come to nothing for one reason and another.
I have just left it for a rainy day to be honest.

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

[derekM]

Ok. I don't know how much (nor do I want to know) you have in your business, but unless it exceeds the annual limit, you can put in as much employer contributions as you like. (And if I am wrong, apologies in advance!).

Personally I wouldn't close down the business unless there were no other alternatives. If your accountant does recommend taking out dividends, then providing there is no additional corp tax (or any other tax) to pay, then go for it.

I don't know the rules and regs about buying property through the business (for example buy-to-let or commercial property), but maybe that could be an option (especially if you have enough money in the bank to pay for the it)?

I don't know if this would help with IR35 at all (Having more than 1 client, etc). I know someone who has property on his business books, don't know the ins and outs myself.

Maybe an idea you may want to discuss with your accountant?

Yeah, well aware of SIPP rules, and as I said in intial post, this thread came about after some stilted information from one of his minions.