Corporation tax return help please

[floricita]

How much do you think the penalties will be for getting this wrong? Get an accountant.

I assume you filed your annual return?

From their site below. However, unless someone can explain to me the difficulties. Why is it so difficult to calculate the correct tax amount, for a day rate fee for a contract that lasted 8 weeks? With only me in the company.

Surely tax owed, not offsetting any allowables is total earned x tax rate?

Penalty ranges for unprompted and prompted disclosure
Type of error Penalty range for unprompted disclosure Penalty range for prompted disclosure
Careless 0% - 30% 15% - 30%
Deliberate but not concealed 20% - 70% 35% - 70%
Deliberate and concealed 30% - 100% 50% - 100%

Remember, if you took 'reasonable care' but still made a mistake, HMRC will not charge a penalty.

[TheCyclingProgrammer]

Assuming you had no expenses or simply don't want to claim any to make life easier, then yes, your turnover should equal your taxable profit so you can work out your CT as 20% of this amount, with whatever is left being retained profit that could be distributed on winding up of the company.

Until that point, any money you've taken from the company for whatever reason can only really be classed as a director's loan meaning you owe it to the company. Its too late for you to declare any dividends or operate PAYE.

On the upside, if all the money you've taken from the company is treated as a director's loan then that at least means you don't have any personal income to report on a self assessment...yet. However once you've wound the company up and correctly received the profits as a capital distribution, you need to pay CGT on this. Assuming you're eligible for entrepreneurs relief (you might not be) this would be 10% otherwise it will be higher (18% or 28% I think depending on your current marginal tax rate).

Example, assuming you had no expenses and withdrew everything in the business account:

Turnover: £5k
Expenses: £nil
Money you've withdrawn (treated as directors loan): £5k
Corporation Tax: £1k
Retained profit: £4k

So at this point, you need to repay at least £1k back to the company so it can pay its CT bill.

Then, assuming you wound the company up, I think the amount you owe the company can be offset against the capital distribution (somebody will correct me if I'm wrong):

Money you owe the company (after repaying £1k to cover the CT): £4k
Capital distribution on winding up: £4k

The two things above cancel each other out, but you still owe CGT on the £4k which can be anywhere from £400 to £1120.

One caveat: you do have a CGT annual exemption of about £11k so if the numbers are small enough you might not owe any CGT.

But this is just the figures. You still need to draw up a set of accounts in the correct format and submit these to HMRC and Companies House.

[floricita]

Assuming you had no expenses or simply don't want to claim any to make life easier, then yes, your turnover should equal your taxable profit so you can work out your CT as 20% of this amount, with whatever is left being retained profit that could be distributed on winding up of the company.

Until that point, any money you've taken from the company for whatever reason can only really be classed as a director's loan meaning you owe it to the company. Its too late for you to declare any dividends or operate PAYE.

On the upside, if all the money you've taken from the company is treated as a director's loan then that at least means you don't have any personal income to report on a self assessment...yet. However once you've wound the company up and correctly received the profits as a capital distribution, you need to pay CGT on this. Assuming you're eligible for entrepreneurs relief (you might not be) this would be 10% otherwise it will be higher (18% or 28% I think depending on your current marginal tax rate).

Thank you.

2 things.

1. Can I claim expenses that occured 18 months ago?

2. I would have to check regarding the money taken out and I'm not sure how something is officially a dividend, but something at the back of my mind remembers when you take out funds from the business account it asks you for a reason and I might have put in dividend, I have no idea if that actually makes it a dividend though! I would have to look properly as to what exactly happened.

[floricita]

Also I'm not sure if I even have my business bank account anymore, if I haven't can I just pay it from my regular bank account? (the corp tax?)

[TheCyclingProgrammer]

Thank you.

2 things.

1. Can I claim expenses that occured 18 months ago?

2. I would have to check regarding the money taken out and I'm not sure how something is officially a dividend, but something at the back of my mind remembers when you take out funds from the business account it asks you for a reason and I might have put in dividend, I have no idea if that actually makes it a dividend though! I would have to look properly as to what exactly happened.

1. Probably, if you kept records and have receipts and they are allowable expenses.
2. I have no idea what you're talking about...but for a dividend to be legal it requires specific paperwork - director's meeting minutes and dividend vouchers need to be produced. You can also only declare dividends if there is sufficient retained profit at the time. You have not declared a legal dividend, I'm sure of that.

However, one thing you could do to write off the loan is to declare a dividend now, equivalent to the amount you borrowed or the retained profit after deducting corporation tax, whichever is lower. But you need to do it correctly. If there isn't enough profit for you to declare a dividend that covers the full loan amount, you'll still owe YourCo some money. And there may still be implications of your current director's loan depending on how much it is in total and how long its been since the end of your company's financial year.

Do you see why you need an accountant now?

[TheFaQQer]

Thank you.

2 things.

1. Can I claim expenses that occured 18 months ago?

2. I would have to check regarding the money taken out and I'm not sure how something is officially a dividend, but something at the back of my mind remembers when you take out funds from the business account it asks you for a reason and I might have put in dividend, I have no idea if that actually makes it a dividend though! I would have to look properly as to what exactly happened.

For something to be a dividend, you need to have declared the dividend (usually at a meeting which has minutes recorded), and prepared a dividend voucher indicating the dividend per share, date, total and tax information. If you do not do this at the time, then the payment is not a dividend. You could fraudulently prepare the paperwork retrospectively, however the penalties for doing so can be severe.

[floricita]

1. Probably, if you kept records and have receipts and they are allowable expenses.
2. I have no idea what you're talking about...but for a dividend to be legal it requires specific paperwork - director's meeting minutes and dividend vouchers need to be produced. You can also only declare dividends if there is sufficient retained profit at the time. You have not declared a legal dividend, I'm sure of that.

However, one thing you could do to write off the loan is to declare a dividend now, equivalent to the amount you borrowed or the retained profit after deducting corporation tax, whichever is lower. But you need to do it correctly. If there isn't enough profit for you to declare a dividend that covers the full loan amount, you'll still owe YourCo some money. And there may still be implications of your current director's loan depending on how much it is in total and how long its been since the end of your company's financial year.

Do you see why you need an accountant now?

I still don't agree that it an accountant is neccessary, these are my first thoughts on the issue without any background reading. I'm sure I can do it.

[northernladuk]

No funds in the bank account, no.

How can you pay your tax if you have no funds in the account? If you owe tax and there company has zero money you could have a real problem on your hands... only one that an accountant can sort out.

You came on for advice, at least 6 people have given you the same advice so take it. Get an accountant. You are neck deep in trouble...

I'm sure I can do it.

Good for you. You've had plenty of advice. Time to go away and do it then.

[Clare@InTouch]

I still don't agree that it an accountant is necessary, these are my first thoughts on the issue without any background reading. I'm sure I can do it.

I'm sure you can. But whether you do things properly, in accordance with necessary legislation, and in the most tax efficient manner, is a different thing. Having a Finance background won't necessarily help as the rules for big companies can be vastly different to those for smaller companies, and it's tax you need to concentrate on rather than accounts.

I wish you the best of luck, I just think you may be doing the equivalent of changing your own car engine with no experience and your fingers crossed. It might look simple, but it's easy to get wrong.

[Scruff]

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