COORPORATION TAX and DIVIDEND PAYMENTS

[gusyah]

right i want this clarified by someone as i get different answers by everyone.

ive been told i am allowed to withdraw 33k a year tax free from my business account as dividend which i have. but i also withdrew another 25k and forgot to put it back in the business account before april 1st which ive been told is the new tax year. will i therefore incur a 20% tax on my 25k or am i allowed a certain time period to put it back into my business account??

 

[Abacus Accountants]

If you declare a dividend (assuming that there are sufficient profits) for the full £58K you will pay higher rate dividend tax on some of it. Alternatively you could declare the £33K dividend which will probably keep you under the higher rate threshold (depending on your other income) and leave the £25K as money loaned to you by the company.

You will incur a P11D benefit in kind charge (minimal cost) by having a beneficial loan but you will not incur any additional tax as long as you repay the £25K within 9 months of your accounting year end (i.e. by declaring another dividend early in the following year).

 

[DeanCo]

It will probably more beneficial for you to declare 25K as a directors loan. However, this depends on your circumstances.

 

[gusyah]

thanks for the reply guys. You will incur a P11D benefit in kind charge (minimal cost) by having a beneficial loan but you will not incur any additional tax as long as you repay the £25K within 9 months of your accounting year end (i.e. by declaring another dividend early in the following year).

just a few things i want to clear up

accouting year end. when would this be, april 1st 2012??

declaring another dividend early in the following year. ...would that be this financial year beginnig 4th april 2011?? i took the 25k out in august last year so jist want to know how long i got to pay it back this year as a directors loan and how much penalty i wud incur.

 

[Abacus Accountants]

The year end would have set when you set up the company. If in doubt do a webcheck on the companies house website for your company. Don't confuse the tax year with your accounting year. The 9 months starts from your accounting year end.

 

[gusyah]

thanks guys. ive just checked and the financial year end is 8th april 2011. just wondering what kind of small fee i'd be required to pay on the 25k ive overdrawn if i declare it as a directors loan. also you mentioned something about taking out a dividend early in this year. is this the full 33k or the remainder ie 33 minus the 25 ive overdrawn. which is 8k??

 

[elaine@cheapaccounting]

year end is 08/04? Now that is a weird year end - are you sure?

Are you sure it is not 30/04?

 

[Abacus Accountants]

Firstly an accounting year end which is not the last day of the month is highly unusual. You may like to check this.
The benefit in kind value for your P11D would be £25,000 x the number of days the loan was outstanding up to 5th April 2011 divided by 365. The result would then be multiplied by the HMRC published rate of interest which is 4% for 2010-11.
Remember to indicate that a P11D is required on your P35 (PAYE year end).
The dividend required would be at least £25,000 in the new accounting year.

 

[gusyah]

hi abacus, thanks for your earlier replies, right just one more queiry

in responce to your queiry, my financial year end is march 31st 2011

i withdrew:

10000 on 22/09/11
10000 on 19/11/2011
5000 on 11/12/11
5000 on 5/2/2011

so how much interest do you think im likely to pay on this amount if I declare it as a directors loan??

also I do have the funds to withdraw 25k as another dividend this year so should I take it out??

SUHAYEL

 

[Abacus Accountants]

I assume that your first three dates should be 2010. Without getting in to precise calculations you would incur a benefit in kind of no more than £400 on those figures. At basic rate tax this equates to a cost of £80.

However you previously said that you took £58K. Is there a further £28K of 'drawings'? If not the amounts concerned do not exceed your dividend of £33K and therefore you would have no overdrawn director's loan and no tax charge.

Remember that the company must have sufficent reserves (accumulated profits) to cover the dividend not just have the cash available.

 

[gusyah]

hi abacus, well i thought id taken out 25k extra but it turns out it was 30k on top of the 33k i took out as dividend. so total drawings are 63k not 58k prior to march 31st 2011. and yeah sorry the 1st 3 dates are meant to be 2010.

£400-500 i could live with. just wondering how long i get to put it back into my business account. would i incur extra fees the longer i leave it??

now i assume i can take out another 33k in this new tax year as dividend. could i not just take that out as dividend and put back 30k of it to pay off the director loan??

 

[Abacus Accountants]

OK it's becoming clearer now! You get 9 months from the end of the accounting year (i.e. until 31st December 2011 in your case) to repay the loan without incurring any additional tax.

You can declare a dividend in April 2011 to account for the £30K loan but you can not take the money out again because you have alrteady had the money last year. The other point to note is that the amount of dividend you can pay from April 2011 is £31,860 (assuming a £7,075 salary) without incurring higher rate dividend tax.

So in summary you can account for last year's drawings with a dividend in this year but this leaves you with virtually no capacity to draw further dividends without incurring tax until April 2012.

You need more in depth advice to establish the tax efficient remuneration strategies that may be open to you.

 

[elaine@cheapaccounting]

Don't forget the BIK on the loan to go on P11D