Take out money in bank

[Welly]

Hello all!

I run a small limited company.

When I did my last year's accounts, my accountant told me to leave some money in bank instead of taking out everything as dividends and salary. He didn't make it clear why I should do it, so I just trusted him and left around £5,000.

Now I wonder if it is possible to take that money from the company? It has become an asset, right? And I can't withdraw it as dividends since I can only withdraw what I have earned this financial year.

Probably something very easy and silly, but I need your advice very much.
Thank you in advance!

 

[Williams lester]

You can only take dividends from profit...which has little to do with cash! Get management accounts done to see what profit you currently have, then you should be able to take dividends from this.

 

[elaine@cheapaccounting]

only reason to keep anything in bank would be to clear liabilities e.g. HMRC corporation tax?

Oh and the accountants bill

(assuming the cash is the balance of the retained profit)

 

[MASSEY]

If you need it you can loan it from the company. And avoid tax that way.

If you dont you can leave it.

Either way its not a problem.

 

[Welly]

Wow, that's a quick response, thank you!

I guess I did wrong when following the accountant's advice, but what is done is done.

I can understand that dividend is not an option here, but there must be some way to get that money back? Otherwise it would stay frozen there until the company's liquidation?

I guess I might spend it on equipment and other tangible assets, but I don't need any expensive equipment to run my business.

 

[elaine@cheapaccounting]

Wow, that's a quick response, thank you!

I guess I did wrong when following the accountant's advice, but what is done is done.

I can understand that dividend is not an option here, but there must be some way to get that money back? Otherwise it would stay frozen there until the company's liquidation?

I guess I might spend it on equipment and other tangible assets, but I don't need any expensive equipment to run my business.

If there is retained profit then you can declare a dividend.

Without seeing the figures and the current position I can't advise further

 

[Williams lester]

Wow, that's a quick response, thank you!

I guess I did wrong when following the accountant's advice, but what is done is done.

I can understand that dividend is not an option here, but there must be some way to get that money back? Otherwise it would stay frozen there until the company's liquidation?

I guess I might spend it on equipment and other tangible assets, but I don't need any expensive equipment to run my business.

Why would you doubt your accountant? Have you asked them why this money needed to be left in the account? If not, go back and ask!

If there is profit you can take a dividend....as I said previously, profit is not related to cash...you can have any amount in the bank but you can only take dividends based on profit not cash.

 

[Welly]

If there is retained profit then you can declare a dividend.

Right, so if last year I earned say £40,000, paid £8400 CT, and took out only £26,600 as dividends and salary, the cash left in bank is £5,000. It is my retained profit from last year.

Can I declare that as dividend this year, depsite the fact that it was earned in the prior year??

 

[Williams lester]

You can take retained profit as a dividend provided you still have a retained profit.

 

[elaine@cheapaccounting]

Can I declare that as dividend this year, depsite the fact that it was earned in the prior year??

yes but you have to have retained profit at the time of declaring the div - so what is the current position.

Note - if this year you have made a loss you can claim a CT refund!

 

[Williams lester]

Do you have any other sources of income...this may affect the tax calculation, perhaps your accountant was trying to keep you in basic rate band?

 

[David Griffiths]

Most people overlook the fact that the corporation tax is provided in the year end accounts, even though it's not due until 9 months later,

That often means that if they take out all of the cash, they will have paid excess dividends because they haven't allowed for this,

Many small companies don't look at net assets based on debtors and creditors, they just see the cash and nick it!

 

[Welly]

Do you have any other sources of income...this may affect the tax calculation, perhaps your accountant was trying to keep you in basic rate band?

I don't think that was the case - I didn't have any other income source at that moment, and he said something about "the company not looking good with an empty bank account".
I can't ask him now because he made several mistakes in the annual accounts, and I no longer trust him.

yes but you have to have retained profit at the time of declaring the div - so what is the current position.
Note - if this year you have made a loss you can claim a CT refund!

My current financial year will end in 6 days, and I have earned enough to cover my CT, those £5,000 still remain in my account, plus I have some more left, not sure if it would be safe to take it out.

 

[Welly]

Most people overlook the fact that the corporation tax is provided in the year end accounts, even though it's not due until 9 months later,

That is very true David, thanks heaven I learned that before withdrawing my first dividend. So yes, I had enough to pay the tax PLUS some leftovers from my P/L that I would like to spend.

 

[elaine@cheapaccounting]

My advice - find an accountant you can trust and who makes sure you know what you can money of yours you can take out of your business.

 

[Welly]

At least now I have some clues to proceed. It's good to know that the company is not sucking money from me irrevocably.

I will try to find a new accountant, will see how much they charge on this forum...