property investment and tax

[The Lone Gunman]

No I do not have an accountant, I thought the idea of a bulletin board for contractors on the subject of Accounting/Legal was to share information about such issues. If I am incorrect I shall leave.

You may have a point. In our defence we are (mostly) IT contractors, the clue is in the "The IT Contractor Portal". Some may have property as part of their business but I doubt there are many.
You asked us for our advice, DaveB gave it.
I assume that nobody had anything to add.
Had you asked for the accounting implications of IR35 and other related subjects we may have been more help.

[JMorley]

FAO simonsjdaccountancy

Thank you for your response. If the company were to have made 14k profit then is the first 10k not taxable. So the company should be able to invest that 10k in an asset without incurring tax. The remaining 4k would of course attract CT.

[ASB]

Thank you for your response. If the company were to have made 14k profit then is the first 10k not taxable. So the company should be able to invest that 10k in an asset without incurring tax. The remaining 4k would of course attract CT.

Depends if the profits were earnt when the 10k nil rate band existed (I assume though that they were).

Strictly speaking ALL the company profits are taxable. It's just that marginal rate relief make the first 10k taxable at nil and the next 40k at 23.75%.

http://www.hmrc.gov.uk/rates/corp.htm (doesn't actualy mention how marginal rteleif operates but you can find it with a quick search).

[simondolan]

Tax

Yep - don't forget the non corporate distributions rate too - if you paid any dividends out then you be paying CT on some or all of that £10k

[JMorley]

ASB / sjd

The profits were made in when the 10k band was still in existance.

So if for instance the company made 20k profit, 14k invested in the property and the remaining 6k paid as dividend.

Am I correct that 10k of the investment is not liable to tax, 4k of it is, as well as the 6k paid as dividend.

[ASB]

ASB / sjd

The profits were made in when the 10k band was still in existance.

So if for instance the company made 20k profit, 14k invested in the property and the remaining 6k paid as dividend.

Am I correct that 10k of the investment is not liable to tax, 4k of it is, as well as the 6k paid as dividend.

Ok, for that specific set:-

Profit = 20k. Mainstream CT:-

10,000 @ 0 = 0
10,000 @ 23.75 = 2,375.

Marginal tax rate = 11.875%

NCRD mandates minimum 19% on distributed profits.

6k @ 19% = 1140
6k @ your marignal rate = 712.50

So total CT = 2,375 - 712.50 + 1140 = 2802.50

Of course these figures are only valid for those exact numbers and could be wrong anyway. You should be able to find a calculator on line somewhere that will do, alternatively the IR do explain the exact mechanics of the calculation on their website. Search for NCDR or non corporate distribution rate.

If you are a higher rate taxpayer you personally will still have more to pay....

I'll repeat something in a different way. You are still trying to think of the 14k as an investment in the property. It is not. It is your retained profit (i.e. a capital account). It just so happens that you have spend the companies monet on the property (i.e. on the purchase of a fixed asset).

[JMorley]

ASB
Firstly, many thanks for your assistance here.
I am however a little puzzled with the numbers you have used, they appear to me to add up to 24k not 20k. Apologies if I am misunderstanding.


From the 20k figure we are talking of:
10k @ 0% = 0
6k @ 19% = 1140
6k @ marignal rate = 712.50
= 24k in total?

Should this not be
10k @ 0% = 0
6k @ 19% = 1140
4k @ marginal rate = 475 (assuming the rate is atill 11.875%)
= 20k total

[ASB]

I guess the way I wrote it was a bit confusing.

All divdends are tax at 19%. This takes the form of a supplement. It is effectively a form of double taxation. So, showing my figures in a slighly different way:-

Profit = 20k. Mainstream CT:-

10,000 @ 0 = 0
10,000 @ 23.75 = 2,375.

Marginal tax rate = 11.875%

NCDR supplement = 6,000 x (19% - 11.875%) = 427.50

[The key thing was always to amke a profit > 50k in years where dividends are paid then the surcharge is avoided]

Hope this clears it up.

[JMorley]

Thank you ASB, you have been most helpful.

[Scaroth of the Jagaroth]

Thank you ASB, you have been most helpful.

Come on, ASB, that's not the CUK way.