Reply to: Offsetting funds against your mortgage from business account

[r0bly0ns]

We had the same situation earlier in the year. In real terms, all it means is that you will get 2 letters for some things instead of one, but the CT will still only be paid in one go.

Accounts will not be due yet, you get a few months grace for this, speak to your accountant who will be able to confirm everything.

[ittony]

Thanks TheFaQQer and VectraMan, that makes sense.

I'm going to see if I can cheekily sting you for some more information about a related end of year matter though, which is this...

According to Hector my company's first "accounting period end date" is mid this month, a year less a day after its incorporation, but my Companies House "Accounting Reference Date" is the last day of the month with a "Next Return Due" date a week after that, which leads me to ask; 1. What gives? Doesn't this double the amount of work I have to do and mean that my corporation tax paid does not match the profit on my annual return; and 2. Do I really only have 7 days to work out and submit my accounts to Companies House?

Thanks again, T.

[TheFaQQer]

is it safe to pay one out of retained profit in the company's next tax year, without losing out?

Thanks, T.

Yes - that's the safest way, since you know what the profit for the year has been, and can then pay a dividend out of that.

[VectraMan]

My company's first Accounting Reference Date is coming up at the end of the month, is there any financial imperative to pay dividends before then (I haven't paid any yet) or is it safe to pay one out of retained profit in the company's next tax year, without losing out?

No. And ideally you should wait until after you get the final figures for the year.

[ittony]

My company's first Accounting Reference Date is coming up at the end of the month, is there any financial imperative to pay dividends before then (I haven't paid any yet) or is it safe to pay one out of retained profit in the company's next tax year, without losing out?

Thanks, T.

[TheFaQQer]

The easiest way is probably to extract money against directors loan a/c - upto a max £5k I think - and put it into your offset. But the saving you'll make on your mortgage payments over a year will be marginal.

And it needs to be repaid before the end of the year otherwise it gets treated like a BIK.

[moorfield]

The easiest way is probably to extract money against directors loan a/c - upto a max £5k I think - and put it into your offset. But the saving you'll make on your mortgage payments over a year will be marginal.

[TheFaQQer]

Right I'm with you, I thought I only paid CT on any dividends paid out, I didn't realise that if I just left profit in my account it had to have CT tax paid at the end of the company year.

What happens if I decide to pay out a dividend next year, from this years profits, I take it I just pay the whole dividend but without any CT deductions as this has already been paid?

You can pay a dividend out of retained profit. Once you have paid corporation tax on the profit first time round, there is no more tax to pay on that profit. But any income you make from the retained profit (e.g. from interest) will incur corporation tax.

Sounds like you need to read some of the getting started guides - either here, SJD, PCG or all of them, and also speak to an accountant about what tax you need to be paying.

[Crossroads]

I run my own books, do my own accounting, sort everything out myself (pretty much)..

I thought I only paid CT on any dividends paid out, I didn't realise that if I just left profit in my account it had to have CT tax paid at the end of the company year.

I recommend you consult a professional to find out what else you might have missed.

[TheFaQQer]

No, you can't do this. It's not your money it is the co.'s money. The only way is to extract the money from the co. legitimately as salary or dividends and pay the mortgage then.

Even if you did do it you would be liable for tax on BIK for the amounts involved.

The best thing you can do is look around for a high interest deposit account fo the co. and stick the money in that.

You could take a loan from the company, for up to £5k but it needs to be repaid before year end. Don't think that incurs any BIK, as long as it's repaid before the end of the company trading year.

[chris79]

You've got the wrong end of the stick. You pay CT on the profits at the end of the year, regardless of whether you pay the rest as dividends or leave it in the company.

You'll only pay the CT once though, so money left in the company won't count towards next year's profits. However interest earned on money left in the company will count towards next year's profits.

Right I'm with you, I thought I only paid CT on any dividends paid out, I didn't realise that if I just left profit in my account it had to have CT tax paid at the end of the company year.

What happens if I decide to pay out a dividend next year, from this years profits, I take it I just pay the whole dividend but without any CT deductions as this has already been paid?

[VectraMan]

What if I choose to just keep all the profits in the business bank account and do nothing, I take it I don't pay any CT as long as its idle sitting with the business?

You've got the wrong end of the stick. You pay CT on the profits at the end of the year, regardless of whether you pay the rest as dividends or leave it in the company.

You'll only pay the CT once though, so money left in the company won't count towards next year's profits. However interest earned on money left in the company will count towards next year's profits.

[chris79]

You're correct. If you pay all the company's money out as salary, including bank interest, there won't be any profit and no CT. But it would be a dumb thing to do as you'd pay more tax on it than if you declared it as profit, paid the CT and paid the remainder as a dividend.

CT is nothing to do with whether you pay yourself the money or not. At the end of each company year you work out the profit, and 20% of that is then due as CT (9 months later). It doesn't matter if you pay the remaining 80% as a dividend, or leave it all in the company.

Wait a sec, maybe I've got the wrong end of the stick here, but can I just confirm something?

I've not yet reached a full financial year in my company, but is it the case that I should be paying CT on all company profits at the end of the company financial year? I thought I only paid CT on anything paid out in the form of a dividend...

What if I choose to just keep all the profits in the business bank account and do nothing, I take it I don't pay any CT as long as its idle sitting with the business?

[VectraMan]

Yes but surely if I never paid a dividend and drained the account to £0 through a salary, then ultimately this 'interest' has been paid to me, and I've then paid tax on it indirectly..

You're correct. If you pay all the company's money out as salary, including bank interest, there won't be any profit and no CT. But it would be a dumb thing to do as you'd pay more tax on it than if you declared it as profit, paid the CT and paid the remainder as a dividend.

CT is nothing to do with whether you pay yourself the money or not. At the end of each company year you work out the profit, and 20% of that is then due as CT (9 months later). It doesn't matter if you pay the remaining 80% as a dividend, or leave it all in the company.

[chris79]

You'll pay CT on the interest as it is part of your companys' profits. You'll pay PAYE on whatever salary you are being paid by the co. The two are not connected.

Yes but surely if I never paid a dividend and drained the account to £0 through a salary, then ultimately this 'interest' has been paid to me, and I've then paid tax on it indirectly..

Are you saying that at the point I receive an interest payment from Bank X, I need to instantly pay corp tax on it?