Corporation Tax Info

Matjc

Afternoon people, I've been a long long time reader of the these forums but now is the time to make my 1st post

Basically Im an IT contractor who runs things through my own LTD company and such will have to pay Corp tax. I just found out my Corp tax is due in Early December, (They sent the letter to the wrong addres hence late notice) Anyway. Total income for 2007-2008 was about 40K, Most of this money has been paid to myself as i brought a house beginning of the year an so was saving a lot for deposit, I leave a few hundred in the business account each month to cover petrol costs, some train fares, lunches, any business meals etc etc. Anything left over each month I put into the business savings account. And so each month repeats itself.

Looking at my bank statements and accounts profit for the year was about 1K. Im not trying to build the business up at the moment as its just myself and as I said all money was needed for house purchase and furniture etc etc.

From going over everything I can find I have come to the conclusion that ill be elgile for small business corp tax which was 20% for that year, so basically about £200 due. Just wanting a quick confirmation if that sounds right to people? Before anyone says yes I do have an accountant but he is on holiday at the moment and not back till near the end of next week so hence I thought id just check if this sounded correct for peace of mind.

Im currently not VAT registered as im just below the threshold for earnings but may change that in the future if that info makes any difference.

Thanks for any help

Mat

Pennywise

How was most of the £40k paid to yourself? If it was salary, paid under PAYE, then the company won't have much of a profit and yes CT would be just a couple of hundred pounds, but you'd have been paying tax and NIC on your salary each month. If it were dividends, then they aren't an expense, so there'd be corporation tax on the full £40k i.e. 20% or £8,000. If you don't know whether you took the £40k as salary or dividends, then you really need to be talking to your accountant sooner rather than later as it sounds like things are in a mess.

slipp_digby

corporation tax is payable on profit. assuming a turnover of £40k, what were your direct costs and therefore your profit for the year?

did the money you 'paid' yourself come from dividends or a salary through PAYE?

Matjc

Sorry should of stated that. Yes im registered PAYE and as such salary is paid that way, NI is paid each month through DD. My personal tax on salary is not due till till end of Jan next year but that is set aside in savings and there is money in an ISA account should I not have enough put aside. Apologies for confusion it was only the profit on Corp Tax I wasn't to sure about, as stated Penny I thought I better check I would not be paying 20% almost twice over for both.

Mat

Pennywise

Even more confused now. For a ltd co director on PAYE, you don't pay NICs by direct debit and you don't pay the tax in one lump in January. It goes through the payroll and tax/nic is payable monthly depending on how much wage was paid. It is when you are self employed that you pay NIC by dd and tax annually.

Also, why have you paid the profits out as salary. It is more tax efficient to pay a low salary and the balance as dividends which don't attract NICs. Unless you are caught by IR35, the low salary/high dividend route is the normal best practice.

matt83uk

If you've paid yourself (in part or full) via dividends then you'll pay corporation tax on the dividends as if it was profit.

4thfrog

matt83uk wrote: »

If you've paid yourself (in part or full) via dividends then you'll pay corporation tax on the dividends as if it was profit.

Does that mean dividends are just subject to 20% corporation tax and not the additional 8% class 4 N.I. contributions tax? or is that to good to be true?

Treading_Water

That's exactly what it means - although Corporation tax is 21% for 2008 income rising to 22% in 2009.

matt83uk

And you can only receive £34800 via divvies before you pay a dividend tax (of 22.5% after tax credit)

slipp_digby

matt83uk wrote: »

If you've paid yourself (in part or full) via dividends then you'll pay corporation tax on the dividends as if it was profit.

Correct and assuming the OP has paid out the money as dividends...

......as a director you have a responsibility to ensure that an interim dividend is legal and the company is in profit, has sufficient money and has accouted for tax. you should also record it, in case you are challenged. if you cant show this, it could be viewed as an unaothorised directors loan. da da daaaaa

Bearing in mind the OP doesnt seem to know how the money was paid out, this should be a concern.