Distributable profit and entertainment expenses

katy123

Good morning

Using the following example, what dividend can be paid from a ltd company?

Turnover - £50k
Allowable Expenses - £10k
Accounting profit - £40k
Plus Entertainment - £1k
Taxable profit - £41k
CT - £7,790

Is distributable profit:
A. Accounting profit - CT (i.e. £32,210)
B. Taxable profit - CT (i.e £33,210)

Thanks

Pennywise

It's accounting profit

katy123

Thank you Pennywise! You have a great day!

katy123

Pennywise wrote: »

It's accounting profit

Hi Pennywise, sorry I must be missing something. Using my example, £11k expenses (both allowable and entertainment) leaves the company meaning there is £39k left, minus CT at £7,790 = £31,210 this is less than the distributable profit figure of £32,210. What am I missing?

How can you distribute £32,210 as dividends if there is only £31,210 available?

00ec25

katy123 wrote: »

Hi Pennywise, sorry I must be missing something. Using my example, £11k expenses (both allowable and entertainment) leaves the company meaning there is £39k left, minus CT at £7,790 = £31,210 this is less than the distributable profit figure of £32,210. What am I missing?

How can you distribute £32,210 as dividends if there is only £31,210 available?

turnover 50k less 10k allowable expenses = 40k
add back disallowed expenses for tax purposes so +1k

taxable profit = 40 + 1 = 41k
therefore tax payable 41k x 19% = 7,790

accounting profit = turnover less expenses (allowed and disallowed) less tax, so: 50 - 10 - 1 - 7.79 = 31,210


I think your confusion lies in either misapplying the word distributable, or why the word "disallowed" is used in that context as you are possibly double counting the 1k if you are including it in the 10k "allowable"

If you mean business entertaining (not staff entertaining) that is expressly disallowed for tax purposes only. The company can still pay for the entertainment, so in that sense the cost is not disallowed when calculating the profit made, but it is for tax.
Whether you show the maths as above, or do it as 40 -7.79 - 1 makes no odds, the distributable profit is, by definition, the money left after all expenses and tax is paid, ie accounting profit of 31,210

katy123

00ec25 wrote: »

turnover 50k less 10k allowable expenses = 40k
add back disallowed expenses for tax purposes so +1k

taxable profit = 40 + 1 = 41k
therefore tax payable 41k x 19% = 7,790

accounting profit = turnover less expenses (allowed and disallowed) less tax, so: 50 - 10 - 1 - 7.79 = 31,210


I think your confusion lies in either misapplying the word distributable, or why the word "disallowed" is used in that context as you are possibly double counting the 1k if you are including it in the 10k "allowable"

If you mean business entertaining (not staff entertaining) that is expressly disallowed for tax purposes only. The company can still pay for the entertainment, so in that sense the cost is not disallowed when calculating the profit made, but it is for tax.
Whether you show the maths as above, or do it as 40 -7.79 - 1 makes no odds, the distributable profit is, by definition, the money left after all expenses and tax is paid, ie accounting profit of 31,210

Thank you for your detailed reply. So to clarify, is £31,210 the amount that can be paid out as dividends?

katy123

I've tried to compare running entertainment through the company and not running it through the company and my figures don't add up.

We've ascertained that the distributable profit is £31,210 - 7.5% div tax nets £28,869.25.

If we don't run entertainment through the company then the figures are:

Turnover - £50k
Allowable Expenses - £10k
Accounting profit - £40k
Taxable profit - £40k
CT - £7,600
distributable profit - £32,400
Minus 7.50 Div tax = £29,970.
We then use £1k for entertainment (clients), gives us a net figure of £28,970 which is £100.75 more than running entertainment through the company.

Super confused