Expenses V dividend

[Punter]

One is the effect on your profit, a £100 expense will reduce the company's profit by £80 (assuming it is tax deductible) as 20% relief will be given, whereas a dividend of £100 will reduce the profit by £100.

Martin

I am an accountant and I don't think this is the case. A dividend of £100 will reduce the profit by £0.

[Ignis Fatuus]

I am an accountant and I don't think this is the case. A dividend of £100 will reduce the profit by £0.

I suppose technically that is self-evident, since dividends may only be paid from profit, so you must have the profit first, ergo the dividend can't reduce it.

But you could sensibly say that having got the profit, paying a dividend reduces it, or at least what's left of it.

Depends whether you mean the accounting amount of profit, or the money in the Co resulting from it.

[kingcook]

I am an accountant and I don't think this is the case. A dividend of £100 will reduce the profit by £0.

Dividends are paid from profits (after corp tax and other expenses), yes?

Say your company has made a profit of £5K (after corp tax and other expenses).

You then take a £100 dividend.

How much profit is left in the company?

[Martin at NixonWilliams]

I am an accountant and I don't think this is the case. A dividend of £100 will reduce the profit by £0.

Hi Punter,

I was referring to the effect on the retained earnings.

In the context of the question (i.e. expenses vs. dividend) it is important to recognise how each option effects the retained earnings as a whole.

Martin

[Nixon Williams]

I am an accountant and I don't think this is the case. A dividend of £100 will reduce the profit by £0.

I think Martin meant to say that a dividend will reduce the retained profit by £100.

Alan

[Nathan SJD Accountancy]

I think Martin meant to say that a dividend will reduce the retained profit by £100.

Alan

I assumed that Martin meant retained profit too.