Tax free filing incentive

[xoggoth]

Ringing up recently about something else I discovered I am due some dosh in respect of tax-free incentive for small company. Not quite sure how to distribute it given that our profits have dropped to very little, -for sake of argument say it is it exactly zero.

In the accounts I can include this "other operating income" in profit and distribute it all as dividend, leaving profit of zero, so is legal dividend.

But in the CT calc I subtract this amount from profit as it is not taxable, leaving a net loss equal to the divi.

is a divi legal provided it does not take the P&L in accounts into loss or does the CT calc result matter?

Cheers.

[Craig@Clarity]

In the CT computation, your profit would be £100 but then you deduct the online filing incentive as it's not subject to CT so you end up with a taxable profit of NIL i.e.

Net profit per the accounts: £100
Less: Online incentive: -£100

Profit subject to CT: £0

This means that your P&L should look like this:

Other income: £100
Expenses: £0
Net Profit: £100
CT@20%: £0
Profit after CT therefore available as a dividend: £100 (N.B. there are other complexities but this is a simple example)

Bear in mind, dividends are paid out after profits after corporation and not before. It shouldn't be seen as an expense of the company.

As an aside, if dividends are paid out and creates an overall bottom line loss in your company, you've effectively made an illegal which means you should consider whether those dividends should be treated as a directors loan.

[xoggoth]

Thanks very much for that