Reply to: Corporation Tax on the company's Turnover or on the Dividends?

[r0bly0ns]

I feel and fear that you are right.

No feel and fear about it, it was announced in the budget last year...........

[Fred Bloggs]

Do keep up. By the time you do it will have gone to 21%, then 22%... and at some point you can expect it to acheive parity with the overall PAYE/NIC tax rate of a permie, if this silly government stays in command (using the term loosely of course)

I feel and fear that you are right.

[where did my id go?]

Bear in mind that the interest you earn on the first 50k is still income that needs to be taxed, though.

Sorry, I should have been clearer in my answer. That is exactly what I meant, that the profit earned on the £50K would b subject to CT.

[malvolio]

Bloody hell! Is it up to 20% now? BASTARDS!!!

Do keep up. By the time you do it will have gone to 21%, then 22%... and at some point you can expect it to acheive parity with the overall PAYE/NIC tax rate of a permie, if this silly government stays in command (using the term loosely of course)

[xoggoth]

Bloody hell! Is it up to 20% now? BASTARDS!!!

[TheFaQQer]

CT is on the profit made.

So in your second year it relates to the profit in that year. The only impact from the 50K you made in the first year will be from the investment income (you did invest it to get a return? )

That 50K from the first year is now capital (spiffing)

Bear in mind that the interest you earn on the first 50k is still income that needs to be taxed, though.

[Bumfluff]

Cheers

[where did my id go?]

CT is on the profit made.

So in your second year it relates to the profit in that year. The only impact from the 50K you made in the first year will be from the investment income (you did invest it to get a return? )

That 50K from the first year is now capital (spiffing)

[Bumfluff]

..Another corp tax question, say after your first year trading you have £50k profit you then pay the corp tax on that, then say you dont take that £50k and after year 2 you have £100k profit in your account (£50k year 1, £50k year 2), is the corp tax due at the end of year 2 on the £100k or £50k ? When they do accounts for the second year will they just deduct what were deemed as profits the previous year ?

Cheers

[Ashwin2007]

Thanks very much to you all for the responses.

[ASB]

I *think* that you used to pay ACT? (advance corporation tax) when you took a dividend - in effect you paid the CT on the profit that made up the divi when you paid it. Is that what you mean or is my memory a grey sponge?

There are two times of which I am aware. One in ACT, but this is long dead. When a dividend was paid it was necessary to account for corporation tax on the dividend. This was then deducted from the bill for the year in which the distribution was made. There were complex carry back rules available.

Strictly this did not affect the amount of corporation tax paid, only when.

More recent was the now also dead non corporate distribution rate. This had the potential to affect the amount of corporation tax a company paid. This would only be the case if a company declared dividends and made a profit of less than 50k.

Another one which was inverse, from about 25 years back was the "close company deemed distribution rule". This cam about because dividends were subject to a form of NI (the investment income surcharge - at 15% if I recall correctly).

Here the government of the day did not like small business accumulating it's profits. So it just assumed they were all paid as dividends if they were not paid as salary. A sort of reciprocal IR35......

[Pondlife]

Is that what you mean or is my memory a grey sponge?

Nope: I just misread it. I was on a call at the time

[where did my id go?]

It was the wording that I thought needed clarification.

I read;

Another common error is that the payment of dividends change the corporation tax payable.

as divies DID change corp tax, which is not the case.

I *think* that you used to pay ACT? (advance corporation tax) when you took a dividend - in effect you paid the CT on the profit that made up the divi when you paid it. Is that what you mean or is my memory a grey sponge?

[Nixon Williams]

Sorry Alan, can you clarify this statement for me.

TIA

Sorry it was not clearer.

A common misconception by clients (only some, not all) is that the level of dividends can influence the amount of corporation tax that is due.

I was trying to make the point that dividends are declared after corporation tax and whatever the level of dividends are, this will not change the amount of corporation tax that is due.

Corporation tax is due on the profits made by the company, profits being the turnover less expenses - dividends are not an expense.

I hope this is clearer!

Alan

[r0bly0ns]

I think he's getting at the fact that whatever you pay yourself as dividends your tax liability as a ltd (Corporation tax) is the same 20% of turnover.

Your non-company tax rate - i.e. personal tax - may, however alter, depending on if you go above the c. £39k higher tax rate threshold.

20% of Profit, not turnover