Hi there everyone
Theres something I want to know about corporation tax even though it is something I haven’t studied yet. I understand that it is 20% of profits, but what I want to know (which I can’t find a clear answer to online) is: if you withdraw money from the company account in the form of a directors salary or drawings, does that also get taxed? It seems like too much tax to pay if you pay 20% of your profits and then a further income tax on the profits you extract. Any input here will be greatly appreciated
Replies (41)
Please login or register to join the discussion.
You can't have looked very hard.
Yes, there is more tax when you take money out. just look up tax rates on salaries, taxes on dividends, or taxes on DLAs for the rates.
The company pays tax on the company's profits. The directors pay tax on their salaries, the shareholders pay tax on their dividends.
The company gets tax relief on the directors' salaries so they're not taxed twice, but not on the dividends. Dividends are taxed at a lower rate than salary though and there's no national insurance on them.
Sometimes operating as a limited company and taking all your income from that company as salary, or dividends, or both, means paying less tax than if you were self employed, sometimes it means paying more. Sometimes it doesn't matter what the tax is because you're forced one way or the other by other commercial concerns.
There's not a single simple answer to your question because it's not really one question, there are a lot of variables to consider to determine whether operating as a limited company and it's often a decision that benefits from specialist advice from a qualified professional, which is why everyone posting here is tremendously rich and successful, and extremely good looking as well.
Hi there
To what extent does the directors salary get tax relief? Does this imply that the director pays 0 tax on their director's salary as it has already been taxed through the company.
Director pays tax on what he gets.
Company gets a deduction for the money they pay the director,
Company gets a deduction for the money they pay the director,
I was going mention W&E but decided against it.
I don't know what textbook you're reading but there is currently no concept of small profits rate. All companies, with certain exceptions, pay CT at 19%.
"Oh I know that it is actually 19%. Just rounding it up to 20 for the sake of simplicity of calculations I guess."
By all means use 20% to calculate an estimate quickly but it's still best to use the actual rates in discussions.
And anyway 19% is easy enough to do in your head for all but massive numbers:
* Take the 20% value you've already calculated - calling it value A;
* Now calculate 10% of A and then halve it- calling it value B;
* A-B = the 19% you wanted.
Easier to do one fifth minus one hundredth in my opinion. Three sums to your four and none of them any harder!
Yes, there is a second tax ... and a third tax, and a fourth tax, and so on.
Company pays tax on profits
You draw a dividend and pay more tax
You bank that cash and earn interest, and pay more tax
You withdraw the money and buy a new car, and pay more tax
You fill up the car tank with petrol, and pay more tax
You ...
I was taught decades ago that the government swore blind that you'd never pay tax on tax. The tutor correctly brought up VAT on fuel duty.
Since then, it's been pretty obvious to me that this assertion by the government is largely a load of old rubbish.
Best might be to keep things in order
Study the corporation tax rules first and learn about S455 on overdrawn loans
You really will get confused if you try to understand this without the basics understood
You are considering here 2 real taxes and a little extra thing or two
Corporation tax (with S455 as the little extra, paid as corporation tax)
Income tax (with so called dividend tax included in the charge to income tax)
Directors’ salaries are taxed in the same way as other employees. The employer claims a tax deduction for the wage and the wage is taxable at the marginal rate of the employee.
However simplistic this question might appear, I wish more company owners asked something similar before they withdraw funds from their company
Another tip - don't just round the tax (or NI) rate up or down for simplicity when telling clients their liabilities......
Money you get off what you buy from the Co-op.
Which isn't much! Scarcely worth beeping my little card at the checkouts.
RE QUOTED COMPANIES
What the directors believe they can get away with paying to the owners of the company.
They are essentially an expression of imagination and confidence, none paid the board are telling the owners they are smarter than them and better qualified to decide how the earned funds are spent (the directors hope this is to something that enhances earnings so they make their next bonus target), more than 100% of the profits for the year paid the board frankly are afraid the owners will sack them and pay high dividends like danegeld was paid, it buys them another year.
RE PRIVATE COMPANIES
In private companies the level of dividends declared is decided by the accountants who are the ones in charge despite what the owners might think.
There's a flaw in the OP's question, in that he doesn't appreciate that the company, the directors/shareholders are separate legal entities. Once he gets his head around that concept, the rest becomes clearer.
Theres something I want to know about corporation tax even though it is something I haven’t studied yet.
Hi
A bit off-topic, and I don't know where your study plan is at the moment but, if you're unlikely to cover Corporation Tax before April 2023, it may be an idea to fast-track your learning a little (perhaps Autumn 2022).
You will probably be aware that Corporation Tax rates are set to change on 01/04/2023 but, you may not be aware that this will include Marginal Rate Relief. MRR is an added complication and may make your learning trickier.
If you can learn the basics on a single-tier tax rate (19%), you should find it easier to translate that into the 2-tier tax rate with MRR.
To the woke that reported me
Copy of my reply to AWeb
I am on the austistic spectrum
Recognised when my son was being diagnosed 20 years ago
Nothing wrong with being high functioning in that spectrum
DISAGREE that the comment was in any way discriminatory
I GUARANTEE that complainer was not in any way on the sprectrum
All Aspies are proud of being such It is what makes us good at what we do
One report by one Woke Snowflake and you accuse ME af Discrimination agasinst ME and those similar to me
Grow up
If the 'relevant' (offending) post was within this thread, then either it's already been deleted ... or I fail to see what could possibly be regarded as annoying (even allowing for the "I'm more important than you" sensitivities of the self-appointed identity protectors out there) in either of your two prior posts.
And yet I see daily examples on this site of bullying and open hostility that are left to fester like open wounds ... which I ignore rather than bother to report. What's going on?
The offending post was removed cleanly leaving replies to the post intact
So much better if offending post replaced by
"Moderated"
I agree
Only Reports are read by moderators, not posts
And every single report demands action
I am fairly confident that moderators only send PMs after the moderation has deleted the the post
They do not look to consider the position of the poster or discuss
They moderate not adjudicate
I am sure that if repeated the comment precisely I would get yet another Banishment
It's been removed. (You reply to a non-existent post by Paul above.)
How the no-longer-there comment could have caused offence, and to whom, is beyond me*. (I read it. So did you, obviously. Deserving of censorship? Of course not.)
Btw, I'd be interested to know whether I get my wrist slapped every time a comment of mine is reported, or do the mods sometimes read a reported comment, realise that the reporter is reading in offence where none should exist, and take no action?
*In contrast, I find use of the word "woke" divisive, and in that sense offensive. But my response is to ask, in this case, Paul - by way of this comment - to think about how he uses it and perhaps self-moderate it a bit in future. Reporting it?! Don't be daft!
my response is to ask, in this case, Paul - by way of this comment - to think about how he uses it and perhaps self-moderate it a bit in future. Reporting it?! Don't be daft!
Similarly I think it was paul.benny dropped a coded "cool it, Dragon*" into a discussion that got a bit sidetracked the other day. That's fine - that's grown up.
*Might not have been aimed at me, but if it caused more than one contributor to stop and think a bit, all the better.
[quote=Tax Dragon] ''How the no-longer-there comment could have caused offence, and to whom, is beyond me*. (I read it. So did you, obviously. Deserving of censorship? Of course not.)''
^^^^ Agreed
''Btw, I'd be interested to know whether I get my wrist slapped every time a comment of mine is reported, or do the mods sometimes read a reported comment, realise that the reporter is reading in offence where none should exist, and take no action?''
Somethimes they remove a post but do not email/slap the poster. I went back to look at one of mine couple of weeks back and it had gone. Nothing offensive, it was a genuine and relevant question, except again clearly someone was being a snowflake. I heard nothing from the sift overloads.
FYI (and do - or don't - do whatever you want with this info) I also don't like this use of the word "snowflake". I find that the person using it tends to be doing so to avoid thinking about/improving their own behaviour, when, often, a spot of navel contemplation might not be such a bad idea.
Yours was probably lost as being a response to the offending comment
Historically the offending post and all replies thereto were wiped clean.
But only offender got the email
Going back a year a few of mine disappered
Complained once and actually got an apology from John explaining the wipe out was due to responding to rather than being the offending comment
At the time the comment stayed in the answers listing but the yellow edit comment disappeared
That is why replacement of offending post with the comment "moderated" would be an improvement
I have responded to such comments before
Woke started as a thing to be proud of by people who were woke
As in they had woken up
Woke (/woʊk/ wohk) is a term, originating in the United States, that originally referred to awareness about racial prejudice and discrimination. It subsequently came to encompass an awareness of other issues of social inequality, for instance, regarding gender and sexual orientation.
Woke - Wikipedia
wikipedia may not always be right
Words can go up and down just like investment opportunities
Offence is taken by choice, not given by the poster
As an Aspie I am of course excused from failing to understand other peoples' issues
Any negative comment about me is now discriminatory against disability conditions
Aspergers is not just a male condition but is so overwhelming male that any such discrimination is also sexist
Shame on Aweb for being sexist and discriminating against disability conditions
Like anyone of my age, I have a couple more conditions that I prefer to hold back on as a reserve against the next matter that arrives