Limited Company Retained Profit

zenmaster

This might be a naive question but I want to be sure.

I'm a IT contractor trading as a limited company. 2 years ago I had 5 months without work which was tough going but it did give me a lightbulb moment, since when I have been managing both my personal and business finance a lot smarter.

The company year end is 31st December therefore Corporation Tax is due in October of next year.

Historically I have always ended the year with around £1k in the bank. The CT for the year was then set aside monthly in the year in which it was payable. There was always a bit of a last minute struggle to find the last few £1k.

This year, following my new regime, I have ended up with around £11k surplus which, since I had a further 3 months without work this year, will cover most, if not all, of my tax liability. It would also serve as an emergency fund in case of another "dry spell".

My question, though, is this - if I leave this money in the bank it is retained profit and therefore subject to CT for this year. The remainder would obviously stay in the company. Would this residual amount then form part of my taxable profit for next year, i.e. would I be taxed on it twice?

chrismac1

You pay corporation tax on your profit in the year adjusted for tax purposes, the two main adjustments normally being to add depreciation and deduct capital allowances. Your tax is due on 1 october 2012 along with the corporation tax return and Companies House filing - combined £250 penalties if late, I recommend seeing 15 September as the effective deadline for all of this.

Retained profits = opening retained profits + profit for tax for year - corporation tax - dividends declared (there may be other elements, these are the main ones)

So the bank balance has no impact on any of this, it is just a company asset. Your accountant should be able to handle all of this and explain it in language you understand. it is your name on the balance sheet, the company tax return and the Companies House submission, not your accountants!

zenmaster

chrismac1 wrote: »

it is your name on the balance sheet, the company tax return and the Companies House submission, not your accountants!

Ha - don't I know it?

They c0cked up once before on my personal tax and I signed it off without checking thoroughly. Fortunately it wasn't a large amount and HMRC were quite forgiving.