Limited company Tax, director salary, dividend and bonus HELP needed!!

Hello

Your query has a number of issues with in it.  Please consider the following:

1. A dividend can only be paid where there are distributable profits - £13k in your case assuming there are no brought forward losses.

2. Where a company makes a taxable profit one year and pays corporation tax and then makes a taxable loss the next year, this can be carried back to claim a CT refund.

3. Dividend payments do not count towards a deduction from taxbale profits.  If, in your case the £6552 were distributed as a dividend the company would still pay CT at 21% on the £6552.

4. A bonus would be treated as an addition to salary, and is therefore a deduction from profits.  However, it is likely that employers National Insurance contributions would be payable at 12.8%.

5. To answer your query, you need to establish the strategy for the business. If it is to minimise tax payments, then probably take the monies as a dividend.  If there are any issues of making contributions to your clients social security "pot" to enable the claiming of future benefits, then clearly National Insurance contributions need to be made via a salary or voluntarily.  If there any issues for a company pension plan, then probably a salary needs to be paid.

The above is not exhaustive and only highlights a few areas you need to consider.

"I am aware that £6475 can be paid to him tax free, which would leave £6552.79 in profit."

There's some employers and employees national insurance to be paid on this amount.

You should get an accountant and avoid all this hassle.

If there has been no Salary already paid, then you can't declare it now unless there is an obligation to pay it and a PAYE sheme had been set up.

"If there has been no Salary already paid, then you can't declare it now unless there is an obligation to pay it and a PAYE sheme had been set up."

Don't you still have nine months to pay a bonus?

you do ... previous poster  failed to mention it

To mnutting

I just wanted to check something in relation to point 5 of your answer:

"To answer your query, you need to establish the strategy for the business. If it is to minimise tax payments, then probably take the monies as a dividend.  If there are any issues of making contributions to your clients social security "pot" to enable the claiming of future benefits, then clearly National Insurance contributions need to be made via a salary or voluntarily.  If there any issues for a company pension plan, then probably a salary needs to be paid."

From my understanding, the director can be paid a salary between the lower earnings threshold £97 p/w and the primary threshold of £110 p/w and still be adding to his social security pot but not have to pay any nic - is this still the case?

thanks

it is

You can only declare a bonus and obtain corporation tax relief if there is an obligation to pay it at the end of the financial year, so if no board minutes or similar are in place then its too late.

A bonus could be declared in the current year to clear any overdrawn loan account provided it is within 9 months of the year end, but I didn't think this was what the original post meant?

I did rush through it though :)

It is not necessary for an obligation for a bonus to exist at the year end. One can include a provision within the accounts and so long as it is paid within 9 months of the year end it should be deductible for CT purposes. This will not clear any overdrawn loan account as at the year end as we are back to when is it paid, which is when it is made available through crediting it to a loan account, net of PAYE of course, if that is the desired course to clear any overdrawn balance.

Try this: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/NationalInsurance/IntroductiontoNationalInsurance/DG_190048

Any thoughts as to how the minimum wage regulations come into this?