Corporation Tax on the company's Turnover or on the Dividends?

[Ashwin2007]

For Limited company:
Can anyone please clarify if the 20% corporation tax is calculated on the Company's turnover or on the actual dividends paid?

[PAH]

On the profit at the end of the company's tax year, payable 9 months after that year end.

Dividends can then be drawn from that profit tax free after corp tax has already been paid (or before then on account), and only if you go over a tax band (e.g. higher rate where 40% comes in) will you have to worry about paying additional tax via your self-assessment.

That's my basic understanding, having read the synopsis of "Corporate Tax for Dummies".

[malvolio]

Come on chaps, these are the basics of owning a company. Don't you do any research?

PAH is quite correct in his summary, but it's a little disturbing someone has to ask

[PAH]

Phew. When I started reading your post I had visions of chokey for having got it wrong for many years.

Still, if in doubt pay an accountant to spell it out. I still haven't got past A is for accountancy in the alphabet of running a business. Should have started at the other end where Z is for ZZZZZ, aka times like when you get your employers pack through from HMRC. At least it's recyclable.

[Nixon Williams]

For Limited company:
Can anyone please clarify if the 20% corporation tax is calculated on the Company's turnover or on the actual dividends paid?

As mentioned the corporation tax is payable on the profits. Currently the rate is 20% however from 1st April this increases to 21% and 22% from 1st April 2009.

Another common error is that the payment of dividends change the corporation tax payable. The level of dividends does not change the rate of Corporation tax that is due.

Alan

[Pondlife]

Another common error is that the payment of dividends change the corporation tax payable. The level of dividends does not change the rate of Corporation tax that is due.

Alan

Sorry Alan, can you clarify this statement for me.

TIA

[51st State]

Sorry Alan, can you clarify this statement for me.

TIA

I think he's getting at the fact that whatever you pay yourself as dividends your tax liability as a ltd (Corporation tax) is the same 20% of turnover.

Your non-company tax rate - i.e. personal tax - may, however alter, depending on if you go above the c. £39k higher tax rate threshold.

[Pondlife]

It was the wording that I thought needed clarification.

I read;

Another common error is that the payment of dividends change the corporation tax payable.

as divies DID change corp tax, which is not the case.

[r0bly0ns]

I think he's getting at the fact that whatever you pay yourself as dividends your tax liability as a ltd (Corporation tax) is the same 20% of turnover.

Your non-company tax rate - i.e. personal tax - may, however alter, depending on if you go above the c. £39k higher tax rate threshold.

20% of Profit, not turnover

[Nixon Williams]

Sorry Alan, can you clarify this statement for me.

TIA

Sorry it was not clearer.

A common misconception by clients (only some, not all) is that the level of dividends can influence the amount of corporation tax that is due.

I was trying to make the point that dividends are declared after corporation tax and whatever the level of dividends are, this will not change the amount of corporation tax that is due.

Corporation tax is due on the profits made by the company, profits being the turnover less expenses - dividends are not an expense.

I hope this is clearer!

Alan