A company has made profits of £38782. From this profit it paid gross dividends to its two directors for £13000 each in total. Leaving a profit of £12782 after the dividends have been paid.
How much is the corporation tax due and how is it calculated, help would be greatly appreciated, thankyou
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Corporation tax
Is based on profits BEFORE dividends. It is 20% for a small company, but impossible to give you a figure as there is not enough information above - there may be adjustments for capital allowances, depreciation, non tax allowable items, etc
Wrong website
This is a website for accountants but from your question you are clearly not an accountant.
You should get the answers to your questions from an accountant.
Point
Technically this is a website FOR accountants. As you are not an accountant, this website is therefore not really FOR you. The main aim of this website is for accountants to share their technical knowledge, not as a general advice service for all. I am clearly not an accountant this is true. This is why I posted the questions on a website that has accountants on it. Point !!
Regardless, if this was just a simple query, you might still have got an answer. As has already been indicated, there is a heck of a lot more to this query than you seem to think. Your question shows such a basic lack of understanding of accounting and tax principles that you are effectively asking us to teach you the full complexities of accounts and tax from scratch. Given that is how we all make our living, why would anyone do that?
I am not sure....
Good comment Stepurhan. At least you have explained why there has been some reluctances, hence the negative comments by some, however thank you to those who have shared some knowledge. Unfortunately I had hoped there would have been a quick answer. I shall be employing an accountant, but my goal was to see how much I estimated the corporation tax to be against the Accountants final figure, see how much he saves me
I am not sure the measurement of his/her worth revolves around what you perceive he/she saves you. An accountant's worth is more often that he stops /prevents the layman submitting figures that are nonsense, when viewed from the perspective of company law, accounting standards and tax legislation. The starting point for such an analysis is usually, are the accounting records accurate?
He/she may end up indicating that you actually owe more tax than you previously thought, not because the accountant is a poor accountant but because your preconception of the tax liability is erroneous.
Approach
I shall be employing an accountant, but my goal was to see how much I estimated the corporation tax to be against the Accountants final figure, see how much he saves me
That's not a sensible approach. You want an accountant who will help ensure your company pays the right amount of tax at the right time, obviously after claiming all the allowances reliefs and exemptions the company is entitled to. If you estimate the corporation tax liability by assuming that all the expenses in the company's accounts are deductible for tax purposes and the accountant then comes along and says the taxable profit is higher because entertaining and depreciation are not allowable he will be right and you will have been wrong. But he has not cost you money, or failed to save it for you, he has just computed the liability correctly.
Oh dear, where to start
"A company has made profits of £38782"
Has it really? Is this the net profit per the accounts, or the profit before tax?
If the former, does it include any disallowable expenses? If the latter, have you included any capital allowances?
"From this profit it paid gross dividends to its two directors for £13000 each in total."
Why would it pay the gross dividend? That sounds like an over-payment. Did it mean to pay each director £11,700, or was it £11,700 in total. If it paid £13,000 (each or in total), have appropriate adjustments been made to show the over-payment in the directors loan accounts? Or by gross did you mean net? What do the dividend vouchers actually say?
And dividends are paid after tax, so if you didn't know the tax payable, how can you be sure the dividends were legal? Never mind, fingers crossed.
"Leaving a profit of £12782 after the dividends have been paid."
Erm, no I think not. What a wheeze that would be!
"How much is the corporation tax due and how is it calculated, help would be greatly appreciated, thankyou"
The calculation is very simple: the tax due is "X" @ 20%. Of course, the tricky bit is working out what "X" is. It's a fair bet that "X" is not even close to 12782.
The best way to get the help and information you want (and need) to determine the value of "X" is to appoint an accountant. Not only would they work out "X" for you, their charges would be deductible too, in precisely the way that your dividends are not.
Once your accountant has determined the value of "X", feel free to post an update here and I'm sure we'd all be more than happy to help calculate the CT payable.
Talk to an accountant
There are two vouchers that state £11700 net dividend,Tax credit £1300 and Gross dividend £13000. This would mean that each director has been paid £13000 would it not ?. Does the company pay 10% tax on these amounts? and 20% Corporation Tax on profits?
You really do need to have a conversation with an accountant during which he can elicit and you can provide all the relevant information.
If each director has been paid a dividend of £11,700, he has been paid £11,700, not £13,000. The tax credit is a notional figure - it is not paid nor does it work like income tax being deducted from wages or interest. If the director is not liable to higher rate income tax when the grossed-up £13,000 is added to his other income, his basic rate tax liability is settled by the £1,300 tax credit.
The company pays corporation tax at 20% on its profits before tax, regardless of whether any dividends are paid out of the profits after tax.
Adjusted profit
The company pays corporation tax at 20% on its profits before tax, regardless of whether any dividends are paid out of the profits after tax.
Only rarely will a company's corporation tax liability be 20% of its profits before tax. Usually those profits will be adjusted for tax purposes to something else and the tax will be 20% of the something else.
Ah ! That's a moot point.
There are two vouchers that state £11700 net dividend,Tax credit £1300 and Gross dividend £13000. This would mean that each director has been paid £13000 would it not ?. Does the company pay 10% tax on these amounts? and 20% Corporation Tax on profits?
No, the company doesn't pay 10% on that. The 10% has nothing to do with the company and everything to do with the directors' personal tax.
What it means is that we pretend that the directors have dividends of £13000 on which there's a mythical 10% tax charge.
Of course, the company will have paid 20% tax on those profits. I'd say, in my bumbling way, that that £11700 cheque they received is more like £14625 less a 20% tax charge.
The answer to your question is that the company will pay 20% of its profits (before dividends) in Corporation Tax. However, as many have stated, the taxable profits are not necessarily those declared on the profit and loss account. In particular, HMRC have their own system of depreciation called Capital Allowances and you are obliged to use this instead of proper depreciation.
Surprised your dividend vouchers still say "Gross Dividends", by the way. We just have "Dividends" and "Tax Credits" these days. It changed in 1973 but it's odd how some things seem to persist into perpetuity.
Simple
Acccording to the new simplified tax system, which relies on a new online return containing three questions
How much did you/your company earn?How much have you got left?No, how much have you really got left?
You now take the figure at 3. above and leave in the third bin from the left on Hampstead Heath. In your case I'll accept the figure of £12782 as above.
Tell you what, if you pay by tonight you can keep a tenner back to pay for a slap up meal of toast and dripping. Merry Christmas!
The only three questions
you really need to ask. Most of my clients think they are the only questions I ever ask.!
I wouldn't make an appointment on Hampstead Heath though...it has a certain reputation :)
I suspect the worry is that
you have done your own calculations which are wrong using profit figures that are (based upon your question) are probably wrong...the answer is of course...get an accountant...safest choice for getting it right.
Yes a dividend of £13,000 is
Yes a dividend of £13,000 is deemed (for the purposes of the recipient's personal tax position only) to be a dividend of £14,444.44 from which 10% tax has been deducted.
I feel sorry
For whoever becomes unfortunate enough to have you as a client, since you think that such things can be so easily "measured".
Most likely
Iam like anyone else. I want my accounts to be correct and hopefully the accountant would save me money. PS. Are you the lady from"Rising Damp" ?
the accountant WILL save you money but not in the way you think he will. You know so little about accounts and tax that you risk getting a lot wrong.
Dangerous presumption
I think it is a dangerous presumption to look at your figure and see how much tax the accountant saved you. The Accountants job is to make sure you pay the correct amount of tax, that might even be more than you are expecting based on your accounts, there are many variables.
You misunderstand tax planning
You misunderstand what an accountant can do. If the year end has passed, then the accountant will probably be able to do very little to save you any tax. Accountant's can't re-write history. Tax saving is all about forward planning, i.e. planning before the event happens or planning to change events. Very few accountants will help you commit fraud by changing the paperwork or creating paperwork purporting to have been created months earlier. You really are looking at things the wrong way if your year end has passed and you're expecting an accountant to work miracles to reduce the tax.
Skimping.
Just for the record. My tax year has just ended. All my Income is recorded and paid through the Bank. All my expenses are dated and shown whether these have been paid by Bank,cash etc.
I have receipts for everything that has been paid and received with an ongoing profit & loss which shows my position at any time of the year. My vat returns are submitted the day after the quarter ends and are paid through the bank when it is due. The VAT automatically calculates for each quarter on the software that iam using.
When I get an accountant, he will have every bit of Information that has been used to run the business, including all categories of expenses payments.
Therefore I would not feel sorry or feel that an accountant would be unfortunate to provide a service for me. The suggestion that I would want an accountant to assist me to commit fraud is Ludicrous, perhaps the person that suggested this runs his practice in a less sought after part of the country, so I guess I wont be requiring your services. For all those who gave positive and honest comments I thank you for your time
With all due respect, you seem to have a decent business there. I'm surprised that you're skimping on accountancy fees, particularly as you admit to not knowing much about Corporation Tax. What about Companies Act disclosure requirements ? How's your knowledge of those ?
Perfect records
How many times people say they have "perfect records" until the accountant looks at them and finds all the errors.
So then
you shouldn't have to spend a lot on an accountant and they can do more useful cost effective work for you.
when I get an accountant..
Oh dear: like jumping from a plane and then declaring "when I get a parachute I will land safely"
Doesn't matter than book-keeping is right to the penny!
It doesn't matter than book-keeping is right to the penny if you've made some wrong assumptions whilst doing the book-keeping. You may well be including your weekly Tesco shopping bill in "the books" - it'll still balance to the penny, but it won't be right. You may well be preparing your book-keeping on the cash basis, it'll balance to the penny, but it won't be right as Company accounts need to be on the accruals basis. You may have made no claim for "use of home as office" - the books will balance to the penny but they won't be right.
There's a massive difference between the book-keeping, i.e. the number crunching, and the actual accounts and tax computations. Getting the book-keeping right is only part of the issue and even then most people make fundamental/systematic errors as to what goes through the "books" in the first place. Do your "books" include provision for stock and work in progress at the end of the year, have you provided for accruals and prepayments? have you provided for unpaid purchase, sales and expense invoices? What about capital purchases and depreciation?
There's about a 99% chance that the "profit" per your "books" won't be the same as the profit per the company accounts as prepared according to Companies Act and Accounting Standard rules, and your "taxable profit" on the corporation tax return will be different again.
Yes, it's the wrong way
This is really in reply to "memyself-eye. Am i missing something here. All my account work is completed with all my receipts,bank statements, payment slips etc etc and and written explanations.
Ive now had a year in business and have now decided to take this to an accountant. The accountant can then finalise my accounts and submit the CT600. Are you saying that this is the wrong way to deal with things,ie the parachute Comment.?
By posting the first comment on here,I merely wanted to have an idea of how much corporation tax would be. There have been some comments made on this thread, some just basically said I will pay 20% of my profits and some suggesting I contact an accountant to ensure that my legal requirements are met correctly.Only two comments on here have seemed to be nonsense and slightly offensive and yours is one of them. You not only mention the Parachute once but twice, when it wasn,t that good of a comment in the first place.
To all others that commented, once again thank you for your time and that includes the people that actually made me aware that this is not a question forum. My business turnover was in excess of £170,000 which was more than anticipated for a first year.
As suggested I will come back on here when Ive been to my accountant and thank you all
It would have been more sensible to see an accountant when you started in business and they could have discussed and advised a lot more. The way you have done it is late. I think this is what prompted the parachute comment. I thought it was funny.
Correct
It would have been more sensible to see an accountant when you started in business and they could have discussed and advised a lot more. The way you have done it is late. I think this is what prompted the parachute comment. I thought it was funny.
Yes, Gareth. Peter's right. But, having decided to appoint an accountant, you've probably recovered the position.
Taking your books and records to an accountant and asking them to prepare your company's accounts and tax return is absolutely the right thing to do.
The suggestion that you might come back here for your tax liability to be calculated when your accountant has calculate your taxable profit was, I believe, tongue in cheek. Once you have appointed an accountant I doubt whether you will have any need to come back here.
@Gareth
Am I correct in assuming you have dealt with the VAT aspects and returns yourself?
How have you computed profits so accurately?
I have only glanced at the comments so excuse me if these are answered already.
The impression you give
Having read back the comments, Ive actually seen the funny side that all you accounting professionals shrieked at the thought that I would attempt to finalise my own return without the tax knowledge required.
Yes I did do my own VAT returns and believe my bookkeeping is exact including the VAT calculations. We will see !!
Thanks anyway
is of a very immature person who thinks that they can deal with VAT and tax without needing any study. You seem to think that as long as you use all the numbers then it must be right.
Do you know what a VAT invoice is? Do you know when you need a VAT invoice?
Analogy
Having read back the comments, Ive actually seen the funny side that all you accounting professionals shrieked at the thought that I would attempt to finalise my own return without the tax knowledge required.
If you think it is good practice to deal with your company's tax return without having the required tax knowledge, you are presumably the kind of person who would offer to remove a friend's troublesome appendix without the required surgical training or to extract a friend's painful tooth without any dental training.
Funny ?
Having read back the comments, Ive actually seen the funny side that all you accounting professionals shrieked at the thought that I would attempt to finalise my own return without the tax knowledge required.[
Well, lots of people do. You only have to browse this forum to find dozens. I'm pleased you're not one of them.
Yes I did do my own VAT returns and believe my bookkeeping is exact including the VAT calculations. We will see !!
Accountancy is an art, not a science. There is no "exact".
Shares
One question, did you actually pay for the shares you applied for and received in your company by depositing money from yourself into the company bank account. You'll be surprised how many new companies forget to do that.
It constantly amazes me
How many people regard appointing (or even talking to) an accountant as something to be done after they start in business - usually after the year end. All with the mantra that the books are all up to date and perfect and it's just a matter of sending off a few numbers isn't it?
For some that is no doubt true but I've yet to meet that person.
I don't know anything about cars
Maybe you think I'm not living on the edge enough but I take my car to a garage for servicing and repairs.
Just had a good meeting with one!
I've just had a good meeting with one! He came in spitting feathers because he's had to pay his solicitor thousands to sort out a dispute with his co-shareholder and he still didn't get the conclusion he wanted. He was calling the legal profession all the names under the sun because they couldn't "fix" his problem to his satisfaction. And all because he set up a business with a "mate", of course, without a shareholder agreement, and without asking either an accountant nor a solicitor for advice. Inevitably it all blew up when him and his mate fell out. This guy was then expecting a solicitor to make it all OK for him and was clearly livid that a compromise had to be reached - he was wanting his day in court but couldn't afford to pay for that himself and somehow thought that someone else would pay all the court-related costs! Trouble is, he showed no signs of having learned from his mistake.