Leaving tax money in your company account...

[ratewhore]

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...

Take roughly 25% of your monthly net turnover, add the VAT you applied for the month, add any monthly expenses including PAYE (Which your accountant will give you in advance).

LEAVE AT LEAST THAT MUCH IN YOUR BUSINESS ACCOUNT EVERY MONTH!!

[tay]

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

You should have an idea of what tax you owe at all times. Doesnt have to be exact.. but to within a thousand pounds isnt hard to guess.

And you know very well that the tax you owe is not zero.... so there is no excuse for having zero allocated towards it.

[Sockpuppet]

I leave at least £5k + bills for the next year in the company savings account at all times..

Not becuase I have any reason to I just don't believe in draining the company of all its money every month.

I don't need to take the money out so I don't and its left in there so I don't spend it.

[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?

Sorry Dude - I just realised I went into fight mode there.

I started this thread off knowing I need to be more responsible...dont know why I started trying to defend myself!

Cheers for the breakdown

[MrRobin]

Now that I know this, I am frustrated that my accountant doesn't provide this info for me as a matter of routine. I.e.

CT this month - £1500
Cummulative CT due on 31/01 - £7500

PAYE/NI this month - £100
Cummulative PAYE/NI due on 31/10 - £200

VAT this month - £1700
Cummulative VAT due on 31/10 - £4000

Company Balance - £25000
Available funds after all tax payments - £13300

[The Lone Gunman]

I leave enough money in the business to cover all owed tax and my wages for 6 months.
I pay divvies once a year from retained profit.

Never, never ever fuc with the tax man.

[Xenophon]

SA - Online calculators such as the ones featured here can help give an indication.

TLG - Good work on taking annual dividends. If only...

[tay]

TLG - Good work on taking annual dividends. If only...

Whats wrong with annual dividends?

[Xenophon]

Whats wrong with annual dividends?

Did I say something was wrong with them?

[ferret]

Whats wrong with annual dividends?

Nothing, I think he was commending him on his well organised and tightly run business!

I have been contracting for 5 years, started off without a clue and took money when I needed it then when realised I was not being clever went to quarterly divs. Last years managed a four monthly div and this year hope to be able to wait until year end as have enough in the personal accounts not to need to take any out.

SA - you earn a lot from what you have stated in other threads. Why on earth are you extracting all the available cash and paying the 40% tax on earnings above the threshold which you must be hitting? Surely best to just take up to the £37k and leave the surplus in the company until you really need it? Then you can decide whether paying the 40% is really worth it at that time!