Leaving tax money in your company account...

[MrRobin]

So do you pay yourself a decent wage all year round then?

No I pay myself minimum wage (~£11k) all year round and the divvies make up the rest, but I only take them when it is in the best interests of my company (just as is stated the dividend meeting minutes), i.e. when profits are up business is continuing and the shareholders should be rewarded for their hard work

[MrRobin]

I just pay myself the max dividend applicable for my circumstances (24k Each year for me) at the first opputunity and then budget it out for personal use throughout the rest of the year. I am quite fiscally disciplined though.

But when you take this £24k, presumably on April 6th, does it leave enough money in the company for the tax that is due, or do you rely on the fact that you'll have plenty of money coming in between April 6th and the date that the tax is due and that will more than cover it?

[SallyAnne]

just as is stated the dividend meeting minutes

yeah, yeah me too

<shhhh - they'll hear us>

[dude69]

SJD reckon it's illegal to take divvies if you dont have enough money for tax.....they probably mean at the end of the year like, but the way they say it implies keeping the money in year month by month.

No they mean at any time. You can't declare a dividend if you don't have the profit.

That doesn't mean you have to have received the money yet, but you have to earned it. Loosely if you bill £10k/month, ex vat, and have received £10k, invoiced but not received another £10k, and WORKED another £2,400, with £1k expenses, then your profits are £21,400. Tax owed is £4,280, so you can legally pay out £17,120 dividend. You've got £10,750 in the bank (£10k, plus the £1,750 in VAT, minus £1k spent), and you can pay every penny out.

OTOH, if you had received all that was receiveable, you would have £22,500 in the bank, but would not be able to pay it all out legally.

[b0redom]

Up until recently, I've been doing exactly the same, but it's been pointed out to me that I could just leave all the money in the company account and link it to an offset mortgage - so I'll probably do that.

[tay]

But when you take this £24k, presumably on April 6th, does it leave enough money in the company for the tax that is due,

Yes.

[gingerjedi]

I just take what the accountant tells me I am allowed and everything else just sits there, I don't treat it as my money and knowing I can be dumped with 2 weeks notice at any time is enough of an incentive to do it this way.

[MrRobin]

No they mean at any time. You can't declare a dividend if you don't have the profit.

... <snip> ...

OTOH, if you had received all that was receiveable, you would have £22,500 in the bank, but would not be able to pay it all out legally.

I see. Thanks for the explanation. My accountant doesn't give me a running total of what tax is due so it is difficult to know how much of my account balance is available to me as a divvy without getting the old spreadsheets out and working it out manually...

[MrRobin]

Up until recently, I've been doing exactly the same, but it's been pointed out to me that I could just leave all the money in the company account and link it to an offset mortgage - so I'll probably do that.

A personal mortgage or a commercial one?

[SallyAnne]

No they mean at any time. You can't declare a dividend if you don't have the profit.

That doesn't mean you have to have received the money yet, but you have to earned it. Loosely if you bill £10k/month, ex vat, and have received £10k, invoiced but not received another £10k, and WORKED another £2,400, with £1k expenses, then your profits are £21,400. Tax owed is £4,280, so you can legally pay out £17,120 dividend. You've got £10,750 in the bank (£10k, plus the £1,750 in VAT, minus £1k spent), and you can pay every penny out.

OTOH, if you had received all that was receiveable, you would have £22,500 in the bank, but would not be able to pay it all out legally.

I get this in theory - but I'm not an accountant and wouldn't have a clue that out of that money I owed £4,280 in tax!!

I would normally take whatever cash I wanted out of the company until I got a bill from HMRC, then tighten my belt for the month until they were paid.

How are we expected to do any other when we dont know what tax is due out?