Paying dividends only out of profit

[ittony]

It's been a quiet year and I'd like my annual dividend this week to be as much as it can be otherwise I'll be left with a shed load of unused lower rate tax allowance I'll never be getting back.

If my company's got £20k in the bank which let's say is 100% pre-tax profit, and also has another £20k's worth of unpaid invoices out there which I am highly confident will be paid eventually and for the sake of argument we'll also treat pure profit - is it then the case that the maximum dividend I can pay now is the 20k in the bank less 21% of the £40k profit I've accrued to date? I.e. although my company has done enough work to 'earn' a £31,600 dividend, all I'm allowed to pay out now is £11,600?

[Sockpuppet]

It's been a quiet year and I'd like my annual dividend this week to be as much as it can be otherwise I'll be left with a shed load of unused lower rate tax allowance I'll never be getting back.

If my company's got £20k in the bank which let's say is 100% pre-tax profit, and also has another £20k's worth of unpaid invoices out there which I am highly confident will be paid eventually and for the sake of argument we'll also treat pure profit - is it then the case that the maximum dividend I can pay now is the 20k in the bank less 21% of the £40k profit I've accrued to date? I.e. although my company has done enough work to 'earn' a £31,600 dividend, all I'm allowed to pay out now is £11,600?

The company makes the profit at the time it issues the invoice not when it recieves the cash (assuming non cash accounting).

You make the profit when you send the invoice however I woudn't assume that it'll be all 100% profit as it won't and in any case you need to remember about the corportation tax/vat.

[ittony]

...I woudn't assume that it'll be all 100% profit as it won't and in any case you need to remember about the corportation tax/vat.

Sorry, I should have mentioned, there's no VAT in the above scenario. What do you mean remember about the corporation tax? That's what the whole question's about, i.e. do I need to put aside 21% of the whole accrued £40k even though there's only £20k in the bank, leaving only a £11,600 dividend payable now, even though a £31,600 one is almost within grasp.

[Sockpuppet]

Sorry, I should have mentioned, there's no VAT in the above scenario. What do you mean remember about the corporation tax? That's what the whole question's about, i.e. do I need to put aside 21% of the whole accrued £40k even though there's only £20k in the bank, leaving only a £11,600 dividend payable now, even though a £31,600 one is almost within grasp.

You could declare the dividend and not pay it.

Dividend is not the same as cash out of the bank. I.e. £31k div declared. £10k paid to you the other £20k is lent to the company by yourself / not taken out. The tax date is the date the div is declared not the date you get the money.

[ittony]

Just found this: https://www.pcg.org.uk/cms/index.php...rticle&id=7605

...which suggests that I can treat the profit expected from the outstanding £20k as available to pay dividends with. Good news. So in the above scenario I could pay out the full £20k currently in the company account, or up to the full £31,600 if I was able to go overdrawn that much.

[Scrag Meister]

You obviously need the cash in the bank for whatever you are going to pay in cash. Make sure you have accounted for CT and I would recommend you speak to your accountant.