Corporation tax and income/dividend tax

[Nixon Williams]

Say in year one my company makes 1000 GBP profit. This is taxed according to corporation tax rules, leaving me with 800 GBP in my company's bank account.

Then in year two I wish to draw a larger salary which means involves paying myself the 800 GBP profit from the previous year.

This 800 will then be taxed again as part of income tax and national insurance.

Is my understanding here correct?

The company will only pay corporation tax on the profit once. If a company retains profit and either uses this to pay an increased salary or dividend, the amount of corporation tax will not be altered.

Once a salary or dividend is paid by the company, then personal taxes may be payable. The level of these taxes will depend on a variety of factors such as the overall level of income, type of income etc..

Generally, other than paying a low salary of £7696 for 2013/14, the most efficient way to withdraw funds is by dividends.

Chat to your accountant about your specific details and let them advise you on the most efficient way to withdraw cash from your company.

[jamesbrown]

And here:

HM Revenue & Customs: Tax on UK dividends

[jamesbrown]

If the corporation tax has already been paid on the 800 GBP in the company account, this means that if the 800 GBP is allocated as a dividend then no additional tax is paid as part of the transfer to the recipient of the dividend?

No, it doesn't mean that. Without knowing your personal tax situation, it's impossible to say what taxes may be due on additional income from any given source. There's some basic reading over on the right -->

[VectraMan]

If you do pay it as salary, then it'll be a cost which will reduce your CT bill for year 2. You might even be able to carry back the loss and get a refund on the CT you paid in year 1, but I'm never quite sure of the rules on that sort of thing.

[wonderboy]

If the corporation tax has already been paid on the 800 GBP in the company account, this means that if the 800 GBP is allocated as a dividend then no additional tax is paid as part of the transfer to the recipient of the dividend?

[borderreiver]

The company will not be taxed again, but (depending on how you take out the £800, what other income you have in that tax year etc) you may have to pay income tax/NI on it.

Any accountant or basic book on running a company should tell you this (hint, hint)

[eek]

Say in year one my company makes 1000 GBP profit. This is taxed according to corporation tax rules, leaving me with 800 GBP in my company's bank account.

Then in year two I wish to draw a larger salary which means involves paying myself the 800 GBP profit from the previous year.

This 800 will then be taxed again as part of income tax and national insurance.

Is my understanding here correct?

Its right but its also wrong as you should take it as a dividend rather than wages. In which case no additional tax would need to be paid.

[wonderboy]

Say in year one my company makes 1000 GBP profit. This is taxed according to corporation tax rules, leaving me with 800 GBP in my company's bank account.

Then in year two I wish to draw a larger salary which means involves paying myself the 800 GBP profit from the previous year.

This 800 will then be taxed again as part of income tax and national insurance.

Is my understanding here correct?