Corporation tax confusion, please explain in simple english!

[Jodi]

Hi, I have recently set up a ltd company. I don't make huge amounts of money and most people are talking about figures in the £100k on here... and at this point I am no where near that. (hopefully I will one day though!) So it's making me confused...

I pay my self the basic salary so I pay the min PAYE (I understand this)
at this point I have only about £12k in my business bank account. I understand that I can pay myself up to £27k in dividends between now and April - and that if its within that amount I won't have to pay personal tax on it.

My question is then, can I pay myself the full £12k as its within the limit or do I have to leave something in my account to pay corporation tax with... or does corporation tax only get paid on what is left after the £27k dividends are paid, so in my case I can pay the £12k and won't have to pay tax on that at all... is that right? That seems a little too good to be true?

I will have more money coming in soon after I pay the £12k dividends so I am not worried about having no money in my account, so I am not worried about "leave something to pay your bills advice" I do understand that, I am literally just wondering about what it is that I get taxed on!!

I hope that makes sense, and hopefully someone will be able to explain to me really simply - thankfully I am not in the accounting business

[Bumfluff]

you need an accountant by the sounds of things.

Corp tax is paid on company profit which is turnover minus expenses, its nothing to do with the 27k personal alliwance. If your turnover for company year was 50k and your expenses 20k you will pay corp tax on the 30k profit.

To work out what of the 12k you can takeout calc your turnover to date ex Vat, minus off expenses salary etc paid to dat u will now hav a profit figure work out what 21% of the profit fig is set that a side for corp tax and take rrst as divs. I would get an accointant to sort this for you im not an accountant or expert.

[kingcook]

You defo need an accountant.

I recently got speaking to another contractor. He thinks that some expenses (those labelled "tax deductable") can be spent from the corporation tax bill (e.g. you have an outstanding corp tax bill of £2,000. Spend £50 on a night in a hotel, you now owe £1950 corp tax to the tax man!!!!)

I tried to explain to him that he is very wrong. Apparently, he has been through 4 accountants and has been doing this for the past 15 years!!!

[Wanderer]

My question is then, can I pay myself the full £12k as its within the limit or do I have to leave something in my account to pay corporation tax with... or does corporation tax only get paid on what is left after the £27k dividends are paid, so in my case I can pay the £12k and won't have to pay tax on that at all... is that right? That seems a little too good to be true?

Yes it is too good to be true.

Let's say your company makes a profit of 10,000 after salary and expenses are paid. You then keep 20% of that for Corporation Tax and pay the other 80% to shareholders as dividends.

You also need money to pay the VAT man if you are VAT registered.

But get an accountant right away before you mess it up.

[northernladuk]

What do you define as 'I don't make huge amounts of money'? I believe there is a break where the umbrella can be more efficient than an LTD and most definately a lot easier to manage. You might want to look at this. Even if you are just in to LTD territory Umbrella might just be easier until you find your feet.

I forget the limit but wasn't it about 20K or something then an Umbrella would be better?

An accountant for example is gonna cost you a grand etc

[JoJoGabor]

Get an accountant, they will make it very clear each month how much profit your company has made which you can withdraw. Don't try to do it yourself,its very complicated and you will make a mistake whih will coat you dearly. I tried and failed

[jmo21]

You defo need an accountant.

I recently got speaking to another contractor. He thinks that some expenses (those labelled "tax deductable") can be spent from the corporation tax bill (e.g. you have an outstanding corp tax bill of £2,000. Spend £50 on a night in a hotel, you now owe £1950 corp tax to the tax man!!!!)

I tried to explain to him that he is very wrong. Apparently, he has been through 4 accountants and has been doing this for the past 15 years!!!

I'm guessing his accounts are probably fine, he's just misunderstanding exactly how it works, which is still bizarre.