Limited company dividend query

geeba88

Hi

I’m about to draw my first dividend from my newly formed limited company.

I think I’m right to assume that the dividend payment is calculated in the following way:

Income (excl. VAT) – PAYE - Expenses = Taxable profit

Taxable Profit – Corporation Tax = Dividend

My question is expense related. I do a lot of mileage, but have a reasonably economical car, so whilst my petrol costs approx £500 a month, I can claim £1100 through the 40p a mile allowance rate

For my dividend payment do I therefore deduct the actual cost of fuel (£500) or the mileage allowance figure (£1100)? I’m hoping it’s the former, as the latter will mean significantly lower dividend payment.

Any advice greatly appreciated

1984ReturnsForReal_2

A div is from profit in which case you deduct from profit the full cost to the company not yourself.

If you are confused about this matter I would visit an accountant asap to update yourself on what a company is & your role in it...

Debt_Free_Chick

geeba88 wrote: »

Hi

I’m about to draw my first dividend from my newly formed limited company.

I think I’m right to assume that the dividend payment is calculated in the following way:

Income (excl. VAT) – PAYE - Expenses = Taxable profit

Taxable Profit – Corporation Tax = Dividend

That's a massive oversimplification, but broadly on the right lines.

Do you have a profit & loss account and balance sheet drawn up to show the profit?

geeba88

Thanks for the feedback

Jimmo - I appreciate that the mileage figures are crude, they were largely for illustratative purposes. I'm aware of the 40p/25p distinction. I've done less than 10000 miles so far, but will do 30000 over the course of the year.

To date i've paid for my business expenses out of a redundancy lump sum from my previous employers. This has slightly skewed things in terms of what I've drawn from my business account, hence my question.

It's early days for my business, i'm investing in Quickbooks Pro next week in order to start producing proper accounts...

zygurat789

Your ltd is a separate legal entity apart from yourself, treat it as such. Do NOT pay business expenses out of your own bank account, rather put the money into the business account and pay the expenses from there.
Limited companies are subject to company law, from your posts it sounds as if you are not well up in this area, for instance failure to file accounts in the correct format could land you with a four figure fine. For your own sake get an accountant sooner rather than later, it could well save you money.

Pennywise

geeba88 wrote: »

It's early days for my business, i'm investing in Quickbooks Pro next week in order to start producing proper accounts...

Quickbooks Pro WON'T produce "proper accounts" - it's a book-keeping program. It won't work out your tax and you'll have to do the journal entries for accruals, prepayments, etc - so you have to understand all this yourself to be able to do the necessary postings. The P&L account and Balance sheet produced by QB even if you manage to do all the necessary adjustments to the book-keeping ISN'T in the format required by Companies House and HMRC. Nor will QB tell you how to claim your expenses, nor what you can and can't claim for.

There is a chasm between "book-keeping" and "accounts and tax" - two completely different activities. Many business owners do their own book-keeping (although some will engage a book-keeper to do it). Only a very few will attempt to do their own accounts and tax - and to do that you either need to be experienced in doing so or you need a lot of time to research how to do it. The vast majority of small companies engage an accountant at the outset and I'd strongly suggest that you do so too, sooner rather than later.

As for basic book-keeping, you probably don't need anything as expensive or complicated as Quickbooks (Like Sage, they might be market leaders but are expensive, over-complicated and over the top for most small owner-managed businesses). Both Sage and Quickbooks are aimed at book-keepers and accountants, not at small business owners who want to do the books themselves!

As for good alternatives, for basic book-keeping, try www.vtsoftware.co.uk, or for an excellent online system, try www.kashflow.co.uk. For probably the only "integrated" system that integrates corporation tax with your book-keeping, you could try www.freeagentcentral.co.uk which is aimed at freelancers and concentrates on easy data entry for those without a book-keeping/accounting mindset including simple entries for mileage claims and out-of-pocket expenses claims. Both the online systems may seem expensive, but many accountants will provide them to their clients at reduced prices and some even offer them free.

pelirocco

Book -keeping programmes are only as good as the information entered , you wont get anywhere near proper accounts by entering the basics , ie sales and expenditure . If your business is small the old paper , pencil and rubber system does a pretty good basic job , and then use an accountant . If the business is medium sized think of using a qualified book- keeper , there are loads out there who will do your books on a part time basis , and then feed into an accountant

geeba88

Whilst I would like to become self sufficent one day, the collective wisdom definitely seems to be to get an accountant asap.

I've started another thread asking for recommendations for accountants that specialise in my area (IT Contracting). I'll see what comes back...

Thanks

Debt_Free_Chick

geeba88 wrote: »

To date i've paid for my business expenses out of a redundancy lump sum from my previous employers. This has slightly skewed things in terms of what I've drawn from my business account, hence my question.

It actually doesn't matter - you should still "book" the expenses to the business.

If you can't deal with the bookkeeping aspects of this (and most of us can't) then you need a bookkeeper as a minimum and probably an accountant too.

Are you definitely a Ltd Co? Or a sole trader?

Smiley82

geeba88 wrote: »

Hi

I’m about to draw my first dividend from my newly formed limited company.

I think I’m right to assume that the dividend payment is calculated in the following way:

Income (excl. VAT) – PAYE - Expenses = Taxable profit - Correct

Taxable Profit – Corporation Tax = Dividend - Correct

My question is expense related. I do a lot of mileage, but have a reasonably economical car, so whilst my petrol costs approx £500 a month, I can claim £1100 through the 40p a mile allowance rate

For my dividend payment do I therefore deduct the actual cost of fuel (£500) or the mileage allowance figure (£1100)? I’m hoping it’s the former, as the latter will mean significantly lower dividend payment.

Any advice greatly appreciated

My thoughts:

Your claim an expense against your business for the mileage (£1100) and reimburse yourself the expense.

Then distribute the remainder as dividend.

Issues with claiming such a significant amount as expenses would mean that you are then not declaring large amounts of dividends, therefore you're 'income' as such is lower (thinking in terms of banks/renting properties, visa applications etc). You wouldn't be able to claim the expenses as income, however your overall income would be higher, as you have reduced your taxable profit and corporations tax.

You need to think of yourself as an employee of your company, as well as a company director. As an employee, you would claim mileage expenditure from your employer. This is a valid and proper expense.

It really just depends on what you want from your limited company, and whether the 'lower income' side of things will ever play into it.

Feel free to post back and I'll see if I can help any further.

turbo

I would recommend Sage Instant Accounts for accounts. I have used this for years without any problems. it is very easy to use. Dividends can only be paid out of profits. Are you sure you will have a profit at year end. ? Tax vouchers have to be done and it does involve a few transactions on the accounts.
Business Expenses should be claimed back on a regular basis and a careful record should be kept of private mileage. We claim private mileage or diesel for a company vehicle. I'm not sure of the exact VAT threshold now but you can't register for VAT until your turnover reaches this threshold or you are very confident that it will reach this threshold.
You will definitely need some professional help for ltd company accounts especially if you are doing them for the first time. We leave corporation tax computations to our accountants but I do everything else. It is much easier to do things correctly from the beginning rather than having to backtrack. A good bookkeeper would be fine to start off with and they could show you how to use Sage. If you are paying salaries through PAYE you will also need to buy a payroll package ( much easier than doing it manually) or get a bookkeeper to do it for you.


Turbo