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AIA

PTP's Tax Tip No.7 ' Non corporate distribution rate with losses

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21st Mar 2005
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Q: My company always has profits in excess of £50,000 per annum with a similar sized dividend paid each year but this year an onerous contract will create a loss. Will I be affected by the 19% non corporate distribution rate on the £40,000 dividend I intend to pay this year?

A: No. If the company has no taxable profits this year then the NCD rate of 19% cannot apply to anything. The dividend will create a band of £40,000 at 19% to carry forward and the regulations are clear that in the following year, when the profits rise to exceed £50,000 again, this excess carry forward is wiped with no tax chargeable. Thus there will be no extra 19% tax to pay. If, however the losses are used to reduce an earlier or later period's profit to below £50,000 then that could result in the NCD rate becoming payable at 19%.

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