Reply to: VAT, FRS & CT

[Mustang]

The mistake you make is trying to work out dividends as some kind of regular earnings payment. They aren't, they're paid out of year end profits, although you can withdraw them in advance based on your expectation of those profits. If you wren't so keen on taking every penny out of the company as quickly as possible, you wouldn't be having the discussion.

What a classic problem!

It seems a popular move with a lot of folk on here where everyone is not thinking like a company and wanting to ensure they use dividends as a salary. No wonder Gordo is hot on our heels.....!!

[Bluebird]

You should keep VAT separate as soon as it touches you a/c. whatever you invoice keep FRS on side ... don't even look at it. You can do this monthly or weekly or per invoice basis its irrelevant.

Thanks, that makes much more sense than the way I was trying to do it - it's actually simpler than I thought !

[Bluebird]

Absolutely not.

Vat is an addition to your invoice charged by you on behalf of the government and paid by your client. You charge it monthly and then repay it to the govt quarterly. It doesn't figure in the CT calc at all unless you are claiming FRV in which case the difference between what you would have paid and what you actually paid in that month/quarter counts as extra profit. Still doesn't change your invoice figure though, which is for work done.

Don't you have an accountant? Or at least a book-keeper?

I think you need one.................

I have I use SJD but I'm trying to work it out for myself so I can save some money....
Just trying to see how it all fits together so I can forcast better as well...

[Bigbird]

I take it that at the end 1/4 when I pay VAT, this comes off the invoice amount for that month reducing the corp tax for that period.

i.e. If the VAT is £1875 [ and I've already stashed the £1875 away ], then when I bill for £5k, i deduct my usual expenses £1 [ salary etc ] and the VAT [ 1875 ] and just calc CT on the remainer £2125 * 19% = 403 giving a divi of £1722

Absolutely not.

Vat is an addition to your invoice charged by you on behalf of the government and paid by your client. You charge it monthly and then repay it to the govt quarterly. It doesn't figure in the CT calc at all unless you are claiming FRV in which case the difference between what you would have paid and what you actually paid in that month/quarter counts as extra profit. Still doesn't change your invoice figure though, which is for work done.

Don't you have an accountant? Or at least a book-keeper?

I think you need one.................

[PAG]

SP - I'm not treating the money as mine - what I am trying to do is work out on a month by month basis how much I have to put aside to cover CT & VAT.

In order to calculate CT monthly I need to know how much of each Invoice will end up as 'profit', I can only do this by finding out when the VAT gets involved in the equation.

You should keep VAT separate as soon as it touches you a/c. whatever you invoice keep FRS on side ... don't even look at it. You can do this monthly or weekly or per invoice basis its irrelevant.

[malvolio]

(((invoice value * 1.175) / 1.14) - (salary + PAYE + NIC + expenses) *0.20) would be a good approximation.

So bill £1000 for work done, and assuming £400 for the fixed costs, you would need to hang on to £126 (ignoring odd pence) for CT liability.

[Bluebird]

SP - I'm not treating the money as mine - what I am trying to do is work out on a month by month basis how much I have to put aside to cover CT & VAT.

In order to calculate CT monthly I need to know how much of each Invoice will end up as 'profit', I can only do this by finding out when the VAT gets involved in the equation.

[Sockpuppet]

true but I've got several bad habits to support

Your making the number 1 error that all businesses do when they start up.

For you its not so bad as you are using a Ltd to avoid tax, I seriously doubt there are any other motives behind you forming one (correct me if I am wrong...but I doubt it). In that you are trying to predict cash flow.

What happens if you take out all the cash then lose contract etc etc.

I personally wount want HMRC after me for a CT/VAT bill. Simply put VAT is not your money, dont treat it as such.

[Sockpuppet]

How about treating your company cashflow as a quarterly thing and not a day-by-day one? That way you don't have to worry about trival variations week by week. You also pay CT once, 9 months after year end, so you don't have to work it out on a rolling basis.

I've got this much in the bank. This much is VAT to be paid back. I've accumulated these many expenses to pay off. I have to pay out this much in slary, NICs and PAYE. 80% of what's left is mine. How hard is that?
The mistake you make is trying to work out dividends as some kind of regular earnings payment. They aren't, they're paid out of year end profits, although you can withdraw them in advance based on your expectation of those profits. If you wren't so keen on taking every penny out of the company as quickly as possible, you wouldn't be having the discussion.

QFT.

I have 3 business accounts. A savings account, 2 current accounts.

When I get an invoice the VAT and CT tax I am going to pay on that go into the other currnet account.

When it comes time for either of these as I claim some VAT back and have some expenses there will be more here than is needed which means I can have some more to take out.

[Bluebird]

OK then, going on the figures you posted at the same time as me.....

Per month, invoice £5k + £875 VAT, exp £1k (assuming this includes salary and NI?).
Profit is £4k + £250 = £4250. CT @ 20% = £850. Divi available is £3400.

At the end of the quarter you pay the VAT of £1875.

CT gets paid 9 months after the company year-end.

I take it that at the end 1/4 when I pay VAT, this comes off the invoice amount for that month reducing the corp tax for that period.

i.e. If the VAT is £1875 [ and I've already stashed the £1875 away ], then when I bill for £5k, i deduct my usual expenses £1 [ salary etc ] and the VAT [ 1875 ] and just calc CT on the remainer £2125 * 19% = 403 giving a divi of £1722

[Bluebird]

How about treating your company cashflow as a quarterly thing and not a day-by-day one? That way you don't have to worry about trival variations week by week. You also pay CT once, 9 months after year end, so you don't have to work it out on a rolling basis.

I've got this much in the bank. This much is VAT to be paid back. I've accumulated these many expenses to pay off. I have to pay out this much in slary, NICs and PAYE. 80% of what's left is mine. How hard is that?
The mistake you make is trying to work out dividends as some kind of regular earnings payment. They aren't, they're paid out of year end profits, although you can withdraw them in advance based on your expectation of those profits. If you wren't so keen on taking every penny out of the company as quickly as possible, you wouldn't be having the discussion.

true but I've got several bad habits to support

[PAG]

Yep, I know that one, but how do I work out the 'profit' for a month in order to calculate CT ?
Do I ONLY subtract the VAT that I pay, when I pay it ?

Therefore:
Month1 Inv = £5875 - exp £1k = 4875 [less CT of 926 ] Dividend = £3949
Month2 Inv = £5875 - exp £1k = 4875 [less CT of 926 ] Dividend = £3949
Month3 Inv = £5875 - exp [incVAT£1,635] = 4240 [less CT of 806 ] Dividend = £3434

Ie as I have to pay VAT 1/4ly will I always get a month where the divi is a lot less than the others because of the VAT payment ?

Month3 Inv = £5875 - exp [incVAT£2,905] = 2970 [less CT of 564 ] Dividend = £2406

But I see your point. I suppose if you are doing this monthly you can always deduct FRS VAT due monthly and then do yuo calc. EG

Month1 Inv = £5875 - exp £1k - vat 635 = 4240 [less CT of 806 ] Dividend = £3434
Month2 Inv = £5875 - exp £1k - vat 635 = 4240 [less CT of 806 ] Dividend = £3434
Month3 Inv = £5875 - exp [incVAT£1,635] = 4240 [less CT of 806 ] Dividend = £3434

[malvolio]

How about treating your company cashflow as a quarterly thing and not a day-by-day one? That way you don't have to worry about trival variations week by week. You also pay CT once, 9 months after year end, so you don't have to work it out on a rolling basis.

I've got this much in the bank. This much is VAT to be paid back. I've accumulated these many expenses to pay off. I have to pay out this much in slary, NICs and PAYE. 80% of what's left is mine. How hard is that?
The mistake you make is trying to work out dividends as some kind of regular earnings payment. They aren't, they're paid out of year end profits, although you can withdraw them in advance based on your expectation of those profits. If you wren't so keen on taking every penny out of the company as quickly as possible, you wouldn't be having the discussion.

[Bigbird]

OK then, going on the figures you posted at the same time as me.....

Per month, invoice £5k + £875 VAT, exp £1k (assuming this includes salary and NI?).
Profit is £4k + £250 = £4250. CT @ 20% = £850. Divi available is £3400.

At the end of the quarter you pay the VAT of £1875.

CT gets paid 9 months after the company year-end.

[Bigbird]

On your VAT return you put £625 in box 1 and £5875 in box 6 then pay £625.

For calculating CT you take £5000 + £250, then minus your expenses and calculate CT at the prevailing rate on the balance. If you are "putting away" your CT in a high-interet account this is the amount to stash.

Your Divi payment is whatever is left over when you have stashed the CT.

HTH.