Reply to: corporation tax

[AtW]

Yes but you missed the point. Nobody pays twice: the company pays once, and the employee pays once.

The company pays twice because first it paid CT on money, that then were paid out as salary and company had to pay Employer NIC on the money that had CT paid on them already, if such salary payment happened BEFORE CT, then company would have saved amount that was gone on paying CT.

Also it makes cost of employment higher - like extra 19% on paying salary which is spread out.

Crap situation of double taxation that forces companies to effectively spend all money and hope for the best.

[boredsenseless]

Be very careful how you are structuring this. By making payments to directors throughout the year but not declaring a dividend until the end of the year your directors loan accounts may be overdrawn, leading to taxable benefits in kind - in which case you will effectively be paying tax twice on the same income....
Also, if you are paying a regular amount without declaring it first as a dividend the IR may interpret this as salary and tax you accordingly.
As others have suggested, discuss with your accountant what is declared and paid when to avoid unintentional tax charges.

You can't do this, you can declare 12 seperate dividends (if monthly) and draw them at that point. Or if you have the full amount in reserves already you can declare the full dividend, you just draw it in chunks, although I can't see why if you had the whole amount in reserve you wouldn;t just extract it the earliest point (tax efficiency withstanding)

[meridian]

Thanks for the advice, basically, what i've done so far is pay myself and my wife ( a fellow director) about a £1000 per month each. This is to ensure that, together with expenses we have enough to live on. I intend, like you suggest, to pay a dividend (at the end of the year) out of profits.

I know that some people pay themselves the minimum wage and very large dividends to minimise tax/NI but surely this would mean paying a dividend monthly in order to provide a living income. Is it OK to do this?

many thanks

Be very careful how you are structuring this. By making payments to directors throughout the year but not declaring a dividend until the end of the year your directors loan accounts may be overdrawn, leading to taxable benefits in kind - in which case you will effectively be paying tax twice on the same income....
Also, if you are paying a regular amount without declaring it first as a dividend the IR may interpret this as salary and tax you accordingly.
As others have suggested, discuss with your accountant what is declared and paid when to avoid unintentional tax charges.

[Nixon Williams]

Yes, but no company I have across works out its profit on a daily basis.

[boredsenseless]

Yes, provided you make profits there is nothing to stop you paying dividends every month.

Alan

Or indeed daily

[Nixon Williams]

Thanks for the advice, basically, what i've done so far is pay myself and my wife ( a fellow director) about a £1000 per month each. This is to ensure that, together with expenses we have enough to live on. I intend, like you suggest, to pay a dividend (at the end of the year) out of profits.

I know that some people pay themselves the minimum wage and very large dividends to minimise tax/NI but surely this would mean paying a dividend monthly in order to provide a living income. Is it OK to do this?

many thanks

Yes, provided you make profits there is nothing to stop you paying dividends every month.

Alan

[expat]

Are you sure? Let's say an Ltd has got £10k, it decided not to pay out it as salaries in the first year, so pays 19% CT, then next year it pays them as salary: person who gets the money will pay Income Tax, and Employee NI, however the company would surely still have to pay Employer NI, on top of Corporation Tax already paid, if the company paid out whole amount earlier than it would have saved on CT otherwise applied.

Yes but you missed the point. Nobody pays twice: the company pays once, and the employee pays once.

1. First point was that the Company and the Employee are 2 different entities.
2. Second point was that each entity pays for what it does. Corporation tax is what a company pays the government for the priviledge of incorporation, limited liability, etc. If you don't ewant to pay that, don't do it.

[boredsenseless]

I have always taken the same view but we have had an accountant post on here saying that monthly dividends are fine so long as they are paid out of profits so what do I know?

I've always taken the same view, but equally if the money is profit then so what, they can come ask the question and then go home. The issue is if anything else is awry.

Sometimes as contractors we get to worried that HMRC is singling us out, and whilst to some extent that maybe slightly true, it is no reason not to act like any other small company in the land.

However if you can afford to live between yearly dividends then why not, it simplifies the paperwork if nothing else.

[Gonzo]

Additional

Even if quarterly dividends are declared, they don't have to be paid that instant. The dividends could be drawn down whenever.

There has to be enough profit in the company to justify the whole dividend when it is declared though.

Alternatively the Directors' Loan Account can be used - there are rules regarding these though so don't come unstuck.

[Gonzo]

Yes but if you have savings then you can take the div every 3 months or so. Monthly divs are likley to get you on HMRC radar which is a place you dont want to be so quaterly, half yearly or yearly divs are the best.

I have always taken the same view but we have had an accountant post on here saying that monthly dividends are fine so long as they are paid out of profits so what do I know?

[Sockpuppet]

Thanks for the advice, basically, what i've done so far is pay myself and my wife ( a fellow director) about a £1000 per month each. This is to ensure that, together with expenses we have enough to live on. I intend, like you suggest, to pay a dividend (at the end of the year) out of profits.

I know that some people pay themselves the minimum wage and very large dividends to minimise tax/NI but surely this would mean paying a dividend monthly in order to provide a living income. Is it OK to do this?

many thanks

Yes but if you have savings then you can take the div every 3 months or so. Monthly divs are likley to get you on HMRC radar which is a place you dont want to be so quaterly, half yearly or yearly divs are the best.

[AtW]

A firm may have salary based employees too, in effect in this case it will be taxed twice.

More realistically suppose you had big chunk of money earned by the Ltd before its year end - no point to pay everything as salary or even dividends, because it is sensible to spread money around as work may not happen every month, in this case one seems to be forced to pay CT, and then pay dividends rather than part salary+dividends, if you just pay minimum salary and big dividends, then surely IR would red flag it.

[boredsenseless]

Are you sure? Let's say an Ltd has got £10k, it decided not to pay out it as salaries in the first year, so pays 19% CT, then next year it pays them as salary: person who gets the money will pay Income Tax, and Employee NI, however the company would surely still have to pay Employer NI, on top of Corporation Tax already paid, if the company paid out whole amount earlier than it would have saved on CT otherwise applied.

But why would you?

If its profit from previous years surely you'd pay it as a dividend. And if it was payment for a recurring salary then this only needs to be paid if you are actually working.

And if you are working you don't need the retained profits to pay the salaries.

[AtW]

You may then have salary, and you will pay tax on it. Nobody pays twice, strictly speaking.

Are you sure? Let's say an Ltd has got £10k, it decided not to pay out it as salaries in the first year, so pays 19% CT, then next year it pays them as salary: person who gets the money will pay Income Tax, and Employee NI, however the company would surely still have to pay Employer NI, on top of Corporation Tax already paid, if the company paid out whole amount earlier than it would have saved on CT otherwise applied.

[sgtbilko]

Best thing to do is get an accountant. You'll get a much better service that asking on here. However good the advice is, you're not paying for it and too be honest, I really do think you need an accountant ASAP...

Don't worry, I have an accountant! I just wanted to run my queries past a few people first.