Non corporate distributions

Non corporate distributions

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A company earned profits prior to the non corporate distribution tax charge being introduced and used to pay dividends (average CT rate below 19%) but still had some retained profits. It stopped paying dividends when the tax was introduced (again rate of CT paid below 19%) and retained some more profit. It now starts paying dividends after NCD is abolished. Will the non corporate rate apply to the profits earned between Mar 2004 and April 2006? Can the company distribute profits made prior to Mar 2004 without incurring additional CT due to the non corporate distribution rate. What rules apply to determine which profits are being distributed?
Matthew Baker

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By Malcolm Veall
27th Mar 2006 12:18

Not Applicable
I would presume that, as there will only be one corporation tax rate applicable, ie 19% for a small comany, that the question of which profits are being distributed is irrelevant, as it was before the Non-corporate rate came in.

Prehaps all small companies should be considering declaration of dividends in the gap between the financial year and the fiscal year ends, ie 1st - 5th April.

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By Paul Soper
27th Mar 2006 14:57

Take it year by year.
Each year is taken separately - the issue is then has a dividend been paid in the same AP as that in which the NCDR applied? If yes apply the NCDR, if no apply the proper underlying rate for year. When the profit arose is completely immaterial - was there a dividend is the proper question.

Dividends paid from 1 April onwards are no longer relevant for the NCDR.

But why pay a dividend in period 1 to 5 April when it will only accelerate any higher rate liability by a year in the hands of the shareholder? Pay after 5.4 surely?

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By noradh
27th Mar 2006 16:50

Wait for Finance Bill?
There must be a strong case for waiting until the Finance Bill is published. This is likely to contain quite a lot on the topic.

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By Malcolm Veall
27th Mar 2006 16:51

Non Corp Rate --> poor directors
In my experience a company which is worrying about the Non-Corporate dividend rate usually has directors with plenty of unused basic rate band rather than higher rate income tax.

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By NeilW
27th Mar 2006 16:00

1-5th April
But why pay a dividend in period 1 to 5 April when it will only accelerate any higher rate liability by a year in the hands of the shareholder? Pay after 5.4 surely?

Only if they haven't used up their basic rate band already. The 1st-5th slot is useful for all sorts of little timing events - interest on loans to the company for example.

NeilW

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