Ltd Co OMB with three Directors.
Accounts ending 31/03/05
Distributed Profit/Dividend £52,928
Retained Profit £155,020
Current Calculations:
1. 2.
Dividend £10,056.32 £4,625.00
Profit £29,453.80 £29,453.80
Total £39,510.12 £34,079.00
Which calculation is correct and why?
Anon
Replies (6)
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Ah ha ...
You seemed to be confused about the results of the PKF calculator (which may be understandable as it does appear to be wrong).
The £4,625 is the (higher rate) income tax on the dividend, charged on the individual. The £39,510 is the corporation tax, ie a total tax charge of £44,135. This raises the question - where does the £29,453.80 come from in calculation 2 of your question? (It doesn't appear on PKF calculator!)
As regards my comment about PKF calculator being wrong, it doesn't appear to be calculating income tax correctly. My calculations give a charge of £5,100 or so, and I have run it through my tax return software to double-check. Or are PKF making non-obvious assumptions?
[EDITED] I have discovered the flaw in PKF calculator - when calculating income tax it is taking into account 10% tax credit on the entire dividend. However, the tax credit to be taken into account only applies to dividends charged to tax. Where the sole source of income is dividends then tax credits of £475 (£4745 @ 10%) are 'lost'. Presumably PKF did not consider this scenario (why would they when, in the absence of other income, it would be usual to take a salary of at least PA). Nevertheless, their calculator will be wrong in certain circumstances. Rely on it at your peril!
£4,625?
Where does that figure come from?
Answer 1 appears to give the correct total, but unnecessarily complicated. If I have understood the question correctly, total PCTCT for year £207,948. If no associated companies, CT is simply charged at 19% - there is no need to separately consider dividends and retained profits.
Neither!
If I've understood the question correctly, neither is correct.
The tax of £10,056.32 represents 19% of the dividend of £52,928.
The tax of £4,625 represents the tax calculated ignoring the dividend tax rules (i.e. (29,453-10,000) x 23.75% (although I get £4,620!)
I presume the taxable profit is £29,454. The dividends paid means that all of this is taxed at 19%
The tax liability is, therefore, £5,596.
Thank You
David
Many thanks for this confirmation. I to agree that point 1 is the correct calculation. I allways compare my template calculations to HMRC calcs and the PKF CT Calculator.
The £4625 comes from the PKF CT calculator (www.pkf.co.uk/web/survey.nsf/taxcomp) and is obviously not working correctly or is not applying the correct rules. It seems to work ok on smaller values <£50k. I cannot quite see how this was calculated.
Many thanks for your time.
Annon
Explanation again ( misleading information)
Ltd Co OMB with three Directors.
Accounts ending 31/03/05
Distributed Profit/Dividend £52,928
Retained Taxable Profit £155,020
Tax Calculations:
1. 2.
Tax on Dividend £10,056.32 £4,625.00
Tax on Profit £29,453.80 £29,453.80
Total £39,510.12 £34,079.00
Which calculation is correct and why?
Anon