Reply to: Income tax refund - money in business bank account

[TheCyclingProgrammer]

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

For all dividends up to the higher rate threshold, the net amount and the declared amount are the same.

[Clare@InTouch]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

Dividends are paid net, so if the value was £1,000 gross it's correct that the company accounts show £900 and you received £900.

Your tax return though will show £1,000 with tax paid of £100. If you're a basic rate taxpayer then nothing further is due. If you're a higher rate taxpayer there will be more to pay, which may well be what's happened.

[northernladuk]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

Time for a new accountant. If you don't trust him implicitly and feel comfortable going to him in the first instance and getting a quick response then you need to bail very quickly. Especially when you are struggling to understand this.

Clare from InTouch has already posted in this thread and is forum advisor of the year so is most definitely a good bet. Tell her I sent you so I get the Pony and not TF.

SJD is the largest in the country and have offices all over the place. I am with them and very happy with them.

Nixon Williams also posts on here and would be another I would consider if I was looking again.

Speak to one (or the both) of the above and get yourself a proper accountant immediately. Getting the difference between company and personal money mixed up is going to cost you one hell of a lot more than either of the suggestions above.

[ninjamouse]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

[dty]

How do you know that - the OP specifically makes reference to "dividends or salary".

Fair point

[TheCyclingProgrammer]

When dividends or salary are paid to my personal account, the amount is taken after tax out of my company accounts - I guess that is what I'm doing wrong.

In a normal company, employees receive salary net of tax/NI, so why should my company be any different?

You really need to speak to an accountant I think but I'll try and explain it for you.

Firstly, if you're paying yourself a regular salary and have set up a payroll then you are quite correct that any income tax payable on your salary will be kept by YourCo and remitted to HMRC on your behalf - that's the whole point of PAYE. At the end of the year you get a P60 and you use this to fill out an Employment sheet on your self-assessment. There shouldn't be any tax due as it has all been paid but there might sometimes be a small correction due to an over/underpayment.

Dividends are different. There is a 10% tax credit which cancels out the basic rate tax on dividends and the money you withdraw from the company is the net amount. For example, a dividend of £900 would be declared and treated as net of the 10% tax credit. For the purposes of calculating your gross income, it would be £1000 taxed at 10%, with the £100 tax being cancelled out by the tax credit. So you transfer £900 to your personal account.

If you're a higher rate tax payer, then any dividends above the threshold would be taxed at 32.5% but you still get the 10% tax credit. 22.5% of the gross amount is the same as 25% of the amount net of the 10% tax credit so using the same numbers, if you had £900 of dividend income above the higher rate threshold, this would still be treated as £1000 gross and you would now owe 25% of the net amount in higher rate tax (£225).

You would still transfer the full £900 to your personal account and put the £225 aside somewhere (e.g. a savings account).

You *could* leave the £225 in the company - you don't have to physically withdraw any money from the business account when you declare a dividend. If you declare a dividend, any money you do not draw should be allocated to your director's loan account to show that the company owes you that money. You are then free to draw from the DLA when you need to.

[TheFaQQer]

If you were paying salary, it wouldn't be any different. But you're not, you're paying dividends.

How do you know that - the OP specifically makes reference to "dividends or salary".

[Clare@InTouch]

Hi, Yeah I do have an accountant who is unavailable, that is why I'm asking here.

I understand the Capital gains tax, VAT requirements from my company account. And yes I understand that I have to personally pay my income tax and NI.

When dividends or salary are paid to my personal account, the amount is taken after tax out of my company accounts - I guess that is what I'm doing wrong.

In a normal company, employees receive salary net of tax/NI, so why should my company be any different?

Capital Gains Tax is a personal liability too.

If you have a tax return that shows a liability then, regardless of how that liability arose, it's payable by you personally.

[TheFaQQer]

I understand the Capital gains tax

Really? Where does capital gains tax come in - are you running an investment business?

[dty]

Hi, Yeah I do have an accountant who is unavailable, that is why I'm asking here.

I understand the Capital gains tax, VAT requirements from my company account. And yes I understand that I have to personally pay my income tax and NI.

When dividends or salary are paid to my personal account, the amount is taken after tax out of my company accounts - I guess that is what I'm doing wrong.

In a normal company, employees receive salary net of tax/NI, so why should my company be any different?

If you were paying salary, it wouldn't be any different. But you're not, you're paying dividends.

[ninjamouse]

Hi, Yeah I do have an accountant who is unavailable, that is why I'm asking here.

I understand the Capital gains tax, VAT requirements from my company account. And yes I understand that I have to personally pay my income tax and NI.

When dividends or salary are paid to my personal account, the amount is taken after tax out of my company accounts - I guess that is what I'm doing wrong.

In a normal company, employees receive salary net of tax/NI, so why should my company be any different?

[northernladuk]

Following completing my self-assessment I don't need to pay as much tax as I thought.

This money is currently sitting in my business bank account where corporation tax and income tax accumulate as my company earn and pay myself. Question is, now I know how much personal tax I'm due, can my company just transfer an 'income tax refund' to my personal bank account?

You can use it to pay for a Running a Business for Dummies book so you won't ask any more ridiculous questions in the future. Either that or an Accountancy for Dummies book so you get your SA right and know exactly how much it is next time.

In fact sod it. Get both, you need 'em.

[TheCyclingProgrammer]

As Clare and jamesbrown have said; why is the money you've set aside for your personal tax bill sitting in the company bank account? You should be setting aside any money for your personal tax bill from the money you've actually taken out of the company (as dividends presumably, as any tax on your salary would be dealt with via PAYE).

[jamesbrown]

Following completing my self-assessment I don't need to pay as much tax as I thought.

This money is currently sitting in my business bank account where corporation tax and income tax accumulate as my company earn and pay myself. Question is, now I know how much personal tax I'm due, can my company just transfer an 'income tax refund' to my personal bank account?

You can take a director's loan if that's what you're getting at (subject to conditions), i.e. if you want to take upfront an amount equal to the anticipated refund and then pay this back to the company when you receive the refund from HMRC, which will be paid into your personal account. However, based on the phrasing of your question, you do appear to be confusing business and personal tax liabilities, which is a little worrying, so I suggest you speak to your accountant before doing anything.

You do have an accountant, right?

[Clare@InTouch]

Income tax is a personal liability and should be paid from your personal bank account. The company account should only be used to pay PAYE, CT and VAT.

I'd recommend a chat with your accountant to clarify