Corporation tax - before or after dividend?

ManicMum

Hello

I am trying to work out if it is worth my husband's while being a contractor. Do you pay corporation tax before or after you pay yourself a dividend?

I know this is probably very obvious to some but I am trying to learn the foreign language of self-employment right now so bear with me!

Many thanks as always.

ManicMum

Hello

If my husband went self-employed can we pay the fees for services into our offset account/mortgage? Obviously this would be a big bonus for us but would we have to have a separate business account? Or does it not matter as long as you pay the right tax at the right time?

Many thanks!!

runninglea

If your husband is set up as a limited company then dividend is paid after tax

easy

Before a dividend. Corporation tax is payable on the whole profit. Dividend can only be paid if there is profit to pay it from.

So, you calculate what your NET profit is. Take off 20% (which will be the level of corp tax for profit less than £300k ), then pay dividend from the remaining figure.

Remember dividend is paid to SHAREHOLDERS, in proportion with their shareholding. So if you own 10% of shares, and your husband owns 90 %, you will be paid 10% of the money set aside for dividend, he will receive 90%.

You might benefit from seeing an accountant to help you get things going properly. It works out cheaper than getting it wrong and having a mess to sort out after you have been trading for a year.

nikki1520

with regard to the offset - you can make a directors loan, but there are strict rules about when it has to be paid back.

You will need a separate business bank account, as a ltd company is a legal "person" in it's own right. I always compare it to looking after your old nan's purse -until it's paid out to you as a dividend (or "birthday present" in Nanspeak!) it's not actually your money

easy

ManicMum wrote: »

Hello

If my husband went self-employed can we pay the fees for services into our offset account/mortgage? Obviously this would be a big bonus for us but would we have to have a separate business account? Or does it not matter as long as you pay the right tax at the right time?

Many thanks!!

No, if your husband has a ltd company, you can't pay the money he recieves from customers into an account in your own name, it MUST be paid into the business account.

If he is "self-employed" rather than the owner of a Ltd co, then you could do that. However the discussion about dividends doesn't apply in that case.

antrobus

ManicMum wrote: »

Hello

If my husband went self-employed can we pay the fees for services into our offset account/mortgage?

Yes. You don't have to put everything through a separate business account.

However it does (a) make things easier for your accountant if there is a separate account and (b) the bank may get upset, because they generally charge for business a/cs and don't like people using personal a/cs for business.

But you did ask about Corporation Tax, and Corporation Tax is charged on (obviously) corporations like limited companies, and if your husband is trading through a limited company, then the limited company will need its own bank account.

And in the UK corporation tax is calculated on profits before the payment of a dividend.

Pennywise

antrobus wrote: »

Yes. You don't have to put everything through a separate business account.

However it does (a) make things easier for your accountant if there is a separate account and (b) the bank may get upset, because they generally charge for business a/cs and don't like people using personal a/cs for business.

But you did ask about Corporation Tax, and Corporation Tax is charged on (obviously) corporations like limited companies, and if your husband is trading through a limited company, then the limited company will need its own bank account.

And in the UK corporation tax is calculated on profits before the payment of a dividend.

But don't forget that whilst he has the company's money in his personal offset, then he's got a directors loan on which there's tax and NIC consequences which can get quite complicated. He has to remember that the money isn't his until it is officially directors fees (payroll), dividends or expense reclaims - anything taken beyond that is a directors loan.

easy

antrobus wrote: »

Yes. You don't have to put everything through a separate business account.

However it does (a) make things easier for your accountant if there is a separate account and (b) the bank may get upset, because they generally charge for business a/cs and don't like people using personal a/cs for business.

But you did ask about Corporation Tax, and Corporation Tax is charged on (obviously) corporations like limited companies, and if your husband is trading through a limited company, then the limited company will need its own bank account.

And in the UK corporation tax is calculated on profits before the payment of a dividend.

Pennywise wrote: »

But don't forget that whilst he has the company's money in his personal offset, then he's got a directors loan on which there's tax and NIC consequences which can get quite complicated. He has to remember that the money isn't his until it is officially directors fees (payroll), dividends or expense reclaims - anything taken beyond that is a directors loan.

I feel it's important to clarify this for the OP.

Your husband is EITHER self-employed (as a sole trader) OR he is the director (and probably shareholder) of a ltd company.

If he is self-employed, then the money paid by his clients is his, and can be kept in your offset bank account - although your record keeping must be meticulous so that you can easily produce proof of his earnings when you need to work out his income at the end of the tax year.

If he is a director, then the money paid by clients belongs to his company, and should be kept in a seperate business account. In theory, the company COULD lend him the money to hold in his offset account, but the Tax & NI implications of doing this would probably just outweigh the benefit in reducing your mortgage account interest.

ManicMum, you might find this website useful http://www.franklyaccounts.co.uk/index.php - I have no connection with it, BTW