We have a small (micro) limited company and for the usual reasons are paying the two directors a small monthly salary using PAYE. A quarterly dividend is then paid net of tax (at 10%). My question is which nominal ledgers should I use to post the transaction. I have 2400 Directors Current A/C to put the net dividend in and 8000 Corporation Tax and 8200 Dividends. However, the transaction won't balance unless I post the tax into a liability A/C presumably against the gross dividend. I'm sure there's a simple answer ...
Thanks
Veronica - who does have an account but doesn't get quick answers.
veronica Adamson
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3-legged entry for Divis!
I am only an Accountant, but I would presume that the entries you require will be Dr P&L Appropriation A/c - Dividends Payable Gross Dividend, Credit Corp Tax payable with tax deducted and credit Directors C/a with Net Dividend.Eg
Dr P&L Dividends payable £100
Cr Corp tax payable @ 10% £ 10
Cr Director's C/Acc £ 90
---- ----
£100 £100
==== ====
Assuming no other transactions in the year, the C/T is cleared by issuing a cheque to the I/R which will be posted Dr C/T payable Cr Bank - same as your normal PAYE.
You don't pay the 10% corporation tax on a dividend
The 10% tax credit is notional, so you don't have to account for it or pay it on a dividend.
Debit the dividend paid to the dividend account and credit the same amount to the directors current account. There is no taxation entry so this is the only journal entry you need to make at the time of each dividend being voted.
Corporation tax is paid on the company's profits before dividends and is at a rate of 10/20/30% according to the annual profits.