Do I need to add back deferred tax before I calc my potential dividend for year

Do I need to add back deferred tax before I...

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In calculating how much dividend I can take out of my company do I need to add back deferred tax and then use what's left for dividends.

Or can I ignore deferred tax and take out more in way of dividends?

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By User deleted
19th May 2015 17:02

No, the very objective of deferred tax being there is to restrict the distributable surplus!!

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By WestBest
19th May 2015 17:20

Thanks, I did some ACCA exams

Thanks, I did some ACCA exams about 10 years ago (never qualified and left the profession), so I'm a bit rusty. Here's my predicament:

I buy an asset for £25K (allowable for AIA)

I depreciate straight-line over 10 years.

My profit for the year is £12k (after dep'n)

I add back dep'n of £2.5k

And take off AIA £25k

Hence a taxable loss of £10.5 (is this my loss figure for the year I carry forward)?

In my accounts I have the profit of £12k

No current tax (as loss of 10.5k)

Deferred tax of £4.5k (NBV £22.5k * 20%)

Profit available for distribution is therefore £12k less £4.5k ie £7.5k

Hope you can follow the above

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By User deleted
19th May 2015 17:26

Yes, so assuming there is no brought forwarded losses (for company law purposes) the maximum that you could distribute is £7.5k

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Replying to johngroganjga:
By johngroganjga
19th May 2015 17:46

Slight correction

taxguru wrote:

Yes, so assuming there is no brought forwarded losses (for company law purposes) the maximum that you could distribute is £7.5k

Plus any retained profits from previous years.

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By WestBest
19th May 2015 17:37

If in my tax comp I use all the AIA (£25k) this creates a negative figure of (£10.5) in my tax comp

To recap:

Profit for year £12k

Add back dep'n £2.5k

Less AIA £25k

Equals (£10.5k)

Is this a trading loss I can carry forward?

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Replying to Wanderer:
By johngroganjga
19th May 2015 17:48

Tax loss

WestBest wrote:

If in my tax comp I use all the AIA (£25k) this creates a negative figure of (£10.5) in my tax comp

To recap:

Profit for year £12k

Add back dep'n £2.5k

Less AIA £25k

Equals (£10.5k)

Is this a trading loss I can carry forward?

That's a TAX loss that you can firstly carry back against any taxable profits in the previous year. Failing that you carry it forward against future profits from the same trade.

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Replying to avan ali:
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By WestBest
19th May 2015 18:12

Thanks, I will carry forward a loss of £10.5k.

However in my actual accounts there will be a profit available for distribution of £7.5K (no profits brought forward for distribution). ie

Profit £12k

Current tax 0 (due to AIA)

Deferred tax £4.5 (NBV £22,500 * 20%)

Profit available for distribution £7.5K

It just seems a little weird that via my tax comp I have a loss to carry forward (£10.5k)  and yet my accounts are showing a profit of £7.5K

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By martinscutt
19th May 2015 18:13

Tax loss = Pottential deferred tax asset

If you have a tax loss to carry forward then you may have a deferred tax asset? It seems to me on the surface the loss is as much a timing issue as the accelerated capital allowances.

The criteria for recognition is more stringent but if the underlying company is profitable going forward its an option.

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By wrightaccounts
19th May 2015 19:36

netting deferred tax
You've included the ' accelerated capital allowances' element of the deferred tax provision, however (in expectation of future taxable profits) you could/should also recognise an asset of 10,500 @ 20% = 2,100

This increases your distributable profits to £9,600

(effectively this is your £12k pre tax profit, less a 20% tax charge)

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