Simple way to calculate corp tax bill?

[CupOfTea]

Hi all, a question to ask regarding corporation tax, how does one calculate what it is 'likely' to be?

Do we simply add up all of the Profits after expenses each month, and then factor in any dividends drawn throughout the year?

For example,

If a director had paid 15k in dividends, and the company had shown a profit of £5000 at the financial year end, would this simply be;

10% of £15k = £1500 tax to be paid on that
20 % of £5000 profit = £1000 tax to be paid on that

So the corporation tax bill would be £2500 - if we assume no company car, no claiming VAT on fuel etc etc

Let's say the directors 'normal' salary through that year was £15k total

Am I in the right direction... Or woefully wide of the mark? And would it make any difference if the company was VAT registered?

Ed.

 

[Bob]

Dividends aren't deducted in arriving at profits liable to CT

 

[kevin.doran]

20% after tax deductible expenses and capital allowances (and after making the relevant y/e accounting adjustments such as prepayments/accruals etc).

As Bob says, dividends don't come into it, including the 10% notional tax credit you're referring to.

 

[CupOfTea]

I see, so are dividends always taxed at 10% (as long as my total earnings have been below 36,000 for that year?

 

[SBlundell]

No - dividends are irrelevant for corporation tax.

So a (very) simple estimate of corporation tax would be profit before dividends (£20k) x 20% (= £4k).

As has been mentioned, don't confuse this with the tax credit on dividends payable. From a personal perspective, the £15k dividend you have received is 'deemed' to be 90% of the dividend paid (i.e. £16,666 actual dividend = £15k / 90%). Above your personal allowance (and up to currently £31,865) this is then taxed at 10% but you also get relief for a 'notional' tax credit (always at 10%).

So, net dividend paid = £15,000
Gross dividend taxable = £16,666 (£15,000 / 90%)
Personal tax @ 10% = £1,666 (£16,666 x 10%, depending on level of income)
Notional tax credit = £1,666 (£16,666 - £15,000)
Net personal tax liability = £nil (£1,666 - £1,666)

 

[MyAccountantOnline]

Hi all, a question to ask regarding corporation tax, how does one calculate what it is 'likely' to be?

Do we simply add up all of the Profits after expenses each month, and then factor in any dividends drawn throughout the year?


Ed.

Hi Ed

If you are using some accounting/bookkeeping software run a profit and loss account report take a look at the profit before dividends are paid, deduct from that figure the cost price of any equipment purchased and multiple what you have left by 20%.

Dividends aren't expenses which reduce Corporation tax - they are the way the company pay out its after tax profits to its shareholders.

 

[GLAbusiness]

If you use business friendly accounting software it will show you the situation as you go through the year. I use FreeAgent and the summary page shows me key details like how much is available for dividends after taking account of tax liability on transaction so far (retained profit). Far simpler than trying to fight through profit/loss or trial balance or whatever else the accountants understand!!!