Dividends

[Greg Longshaft]

Hi,

I hope you can help me with this simple question, I have x dividends remaining for 2010-2011 tax year before I pay high rate tax.

1. Would it make sense to take the dividends out as profit minus taxes in April 2011 and put into a savings account?

2. Do I have to take the profit out or can i leave it in my business account as retained profit, if i do this then will my allowance before HRT for the 2011-2012 tax year be the retained profit + my 2011-2012 allowance?

3. what happens for all other previous tax years where i have not used my threshold allowance, can these be carried forward?

In a nutshell my question is how can i maximise my dividend payments without paying HRT, also does it make sense to withdraw profit dividends and invest them every april?

many thanks.

[Craig@Clarity]

Hi Greg,

1. Yes it would otherwise you lose the unused basic rate allowance.
2. The retained profit in the company can be carried forward if you don't declare it as a dividend and is what is left over from retained profit brought forward from the previous company financial year + profit after CT in the current company financial year minus dividends declared in the current company financial year.
3. You lose them and cannot carry them forward.

In a nutshell, it's worth considering paying dividends up to the higher rate threshold at least (provided there is enough company retained profits to do so).

[SueEllen]

Hi,

I hope you can help me with this simple question, I have x dividends remaining for 2010-2011 tax year before I pay high rate tax.

1. Would it make sense to take the dividends out as profit minus taxes in April 2011 and put into a savings account?

You can do it's up to you.

2. Do I have to take the profit out or can i leave it in my business account as retained profit, if i do this then will my allowance before HRT for the 2011-2012 tax year be the retained profit + my 2011-2012 allowance?

You can leave it in the account for a few months but I'm sure you will get more interest on a savings account than a current account. And no your HRT won't increase for the next tax year.

3. what happens for all other previous tax years where i have not used my threshold allowance, can these be carried forward?

No

In a nutshell my question is how can i maximise my dividend payments without paying HRT, also does it make sense to withdraw profit dividends and invest them every april?
many thanks.

If you have a profit in there before every 5th April have a board meeting and give the shareholders dividends so they remain under the tax threshold for that tax year. Then make sure you do the paperwork i.e. minutes, dividend vouchers that reflect that. Then either pay the dividends immediately or at a later date in the year. I should add if you are paying them by cheque it's up to you when you cash the cheque, even if the cheque is dated a few months back.