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retained profits, dividends, loss carry forward

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Hi,
please can someone help me with two questions?

1. my private UK limited company is about to make a loss for current accounting year, but I have some retained profits from previous years, can I still pay myself dividends for this accounting year using the retained profits?

2. can the loss for current accounting year be carried forward to the next accounting year for corporation tax (i.e. to offset any future profit)?

many thanks in advance!
Katie

Replies (14)

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By Anonymous.
14th Aug 2020 21:30

Katie,

Unfortunately, following the posting from the site owners this morning, we are unable to help.

https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers

Under the heading "What is Any Answers for?", bullet point 5 says:

'They [finance professionals] are not here to provide free accounting advice.'

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Replying to Anonymous.:
blue sheep
By NH
15th Aug 2020 07:39

confusing isnt it? I presume Lions bill is already in the post

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Replying to NH:
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By Anonymous.
15th Aug 2020 12:17

NH wrote:

confusing isnt it? I presume Lions bill is already in the post

Baffling!

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Replying to Anonymous.:
JCACE
By jcace
15th Aug 2020 16:13

The OP is not asking for accounting advice, but for some information...there is a difference. Advice is what is given when you advise someone. If the OP had asked whether she should pay a dividend or should carry losses forwards, she would be asking for advice.
Lion has provided information.
No need for more JS-bashing.

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Replying to jcace:
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By Tax Dragon
15th Aug 2020 16:27

Besides which, I would take that part of the guidance as a warning, not a prohibition. The warning is that OPs should not expect advice.

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Replying to Anonymous.:
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By MuayThai
18th Aug 2020 21:17

Please remind your accountant to provide for the section 455 tax

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Replying to MuayThai:
Psycho
By Wilson Philips
18th Aug 2020 21:56

What s455 tax?

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RLI
By lionofludesch
14th Aug 2020 23:15

1. You must deduct this year's loss from the profits you had in previous years but you can pay dividends out of the balance.

2. Yes but your accountant might suggest better options.

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By Paul Crowley
15th Aug 2020 11:32

It is more complicated if you have already paid the dividends
Was it makings profits, then suddenly makes an unexpected loss?
Based on prior questions, you clearly do not have an accountant

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By memyself-eye
15th Aug 2020 20:35

My teeth hurt

Should I pull the this year or wait until next year when they might hurt less. If I pull them now can I put them back in next year?

I don't have a dentist, but thought information provided here might help.

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Replying to memyself-eye:
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By Paul Crowley
15th Aug 2020 23:40

Try grinding really hard. The pain of grinding will obfuscate the existing pain

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Replying to memyself-eye:
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By Paul Crowley
16th Aug 2020 00:20

Yet another bl00dy duplicate

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By philrob
17th Aug 2020 18:15

Katie, unfortunately you have got caught in the crossfire reminding people of the guidelines for the site and what they can expect when posting. :-(

In answer to your question. Dividends depend on timing and forecasting.

Dividends can only be paid if there are sufficient distributable reserves (which you clearly know)

If you are confident that you will have retained earnings at the end of the year even after this year's losses are taken into account then, Yes (in my opinion) you can pay dividends (after all lots of quoted companies do this when they make losses in the current tax year but have reserves).

If you have retained profits at the start of the year but forecast that these will be wiped out by losses at the end of the year you run the risk of paying an unlawful dividend (which, should you go bust, the Receiver could require you to repay for the benefit of your creditors).

If you have reserves, declare a dividend, then lose lots and wipe out the reserves then it could be a legal dividend if the loss was unforeseen (and unforeseeable by a 'normal' person) at the time you made the decision.

Make sure you have a written board minute (even if you are the sole director and the sole shareholder - they are different hats) that records your consideration on whether you are able to pay a dividend or not and whether you should or not.

As an aside - If it looks like losses will continue for a while but you are *absolutely confident* that you will return to profitability then, provided you have the cash to do so AND assuming that you can meet your obligations as they fall due, if you need money to live on, you can pay yourself a salary (accounting and remitting the Er & Ee NI / PAYE that will apply)

In terms of the loss carried forward:

Unless your accountant has any 'cunning plans' for dealing with the loss then normally the loss is carried forward and can be used so that future corporation tax is calculated after the losses are taken into account. Note this assumes that there is no change in trade as losses from one trade can't be carried forward and applied to a different trade.

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Replying to philrob:
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By Katie2018
17th Aug 2020 18:48

Thank you so much!

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