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  • FIRST POST
    • stephanieemma
    • By stephanieemma 5th Aug 18, 4:49 PM
    • 25Posts
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    stephanieemma
    Dividends and company profit
    • #1
    • 5th Aug 18, 4:49 PM
    Dividends and company profit 5th Aug 18 at 4:49 PM
    Firstly, before anyone says 'get an accountant', I will be when I do my end of year accounts, but I am not looking to get one now because in two weeks I will no longer be earning any money through my company for quite a few months while I recloate. Plus, I do have savings in the bank to cover any mistakes I might personally make when projecting what money to put aside for my personal self-asessment so I'm not stressing out too much.

    I understand I can only take dividends from profit in my ltd company, but can I just clarify:
    -Do I also have to calculate corporation tax due and then what's left is what's available as profit from which to take dividends?
    -Is it annualised or at a 'point in time'?

    For example I recently had an invoice paid, let's pretend it was 6k into my company account and I have 2k business expenses leaving me with 4k. As of TODAY, do I have 4k available for dividends (depending on the corporation tax question above) or is it related to end of year? I know I will be getting another invoice soon, let's pretend for 10k next time, but I need a dividend now...
Page 1
    • chrismac1
    • By chrismac1 5th Aug 18, 5:39 PM
    • 2,561 Posts
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    chrismac1
    • #2
    • 5th Aug 18, 5:39 PM
    • #2
    • 5th Aug 18, 5:39 PM
    I feel it is unwise for anyone to answer these questions. Because if you don't know the answers to these, there are 100 others you're not asking, but should be, in order to get the accounts right.


    The time to get an accountant was when you incorporated your company, you are already late. If you start messing around with dividends and stuff now, when you do finally hire one you'll end up paying more fees. There will be extra work for him or her to sort out your mess arounds.


    I don't welcome these sorts of clients, because in my experience 80% of them can't for the life of them understand why they need to pay me more fees to sort out the muck-ups. So please bite the bullet now to avoid this sort of thing later.
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    • Pennywise
    • By Pennywise 5th Aug 18, 7:41 PM
    • 10,899 Posts
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    Pennywise
    • #3
    • 5th Aug 18, 7:41 PM
    • #3
    • 5th Aug 18, 7:41 PM
    You need to prepare proper management accounts including not just paid invoices/expenses, but also unpaid invoices/expenses, and other accruals/prepayments, stock adjustments, depreciation etc., and yes, you then have to estimate corporation tax on the profits, to give the "distributable" profit available for a dividend. Basing it on cash in the bank is far too inaccurate. If you're not going to get an accountant in the short term, then you need some decent book-keeping software to at least give you a ball-park for distributable profit or better still, subscribe to Freeagent which actually calculates corporation tax and therefore distributable profits as you enter your book-keeping data so gives you live figures to work with.
    • stephanieemma
    • By stephanieemma 5th Aug 18, 7:45 PM
    • 25 Posts
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    stephanieemma
    • #4
    • 5th Aug 18, 7:45 PM
    • #4
    • 5th Aug 18, 7:45 PM
    Thanks Pennywise for a more useful response.
    • chrismac1
    • By chrismac1 5th Aug 18, 10:22 PM
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    chrismac1
    • #5
    • 5th Aug 18, 10:22 PM
    • #5
    • 5th Aug 18, 10:22 PM
    Very simply, for the benefit more for other readers than the OP:


    If you don't know how to prepare company accounts, and don't want to hire someone who does, don't form a limited company. Operate as a sole trader, keep it simple, and you'll never post these sorts of questions on here.
    Hideous Muddles from Right Charlies
    • stephanieemma
    • By stephanieemma 6th Aug 18, 10:32 AM
    • 25 Posts
    • 3 Thanks
    stephanieemma
    • #6
    • 6th Aug 18, 10:32 AM
    • #6
    • 6th Aug 18, 10:32 AM
    In order to get my current work, I had to move from being a sole trader to a LTD company. I wasn't aware of this until a few days before the work began, so I have had no choice but to get on with it. I was certainly not going to turn the work down having been looking for a new gig for over a month and also knowing about my upcoming pause in earnings due to relocation. There is no need to be a smartass,

    For anyone else interested, I discovered NatWest offers a free FreeAgent subscription to business customers, so I'm going to crack on with putting all my info on there.
    • laticsforlife
    • By laticsforlife 6th Aug 18, 2:58 PM
    • 1,208 Posts
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    laticsforlife
    • #7
    • 6th Aug 18, 2:58 PM
    • #7
    • 6th Aug 18, 2:58 PM
    Blimey, I wish sometimes people would just answer the question you asked.

    All their sage advice about accountants, you already qualified why you were asking.

    The basic answer is Yes, you draw a dividend from available funds after tax.

    Businesses that pay interim dividends do so by completing management accounts perhaps monthly, so they can see how their profit is rather than waiting for an annual set of accounts.

    If your setup is very simple, then there's no reason why you can't draw the 4k as a dividend, and if it turns out you don't have the profit, then it can be taken via your Directors Loan Account and re-categorised as salary, and pay the tax and NIC that way.

    But surely your profit won't ever be any higher than 4k and might be less once the accounts are drawn up with things like Capital Allowances or other such notional deductions, I'd say you were on a pretty safe wicket.

    As you are a one-man-band the end result is a lemon as your tax return taxes whatever is taxable in any case. The CT might change a bit if something gets categorised as wages, as the PAYE and wages will be deductible (leaving MORE profit for divi) with less CT, but perhaps more tax via tax return if you go into Higher rate.

    whoops, this was supposed to be a simple answer, got carried away there.
    I didn't do it, nobody saw me do it, you can't prove a thing!
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    • stephanieemma
    • By stephanieemma 6th Aug 18, 3:34 PM
    • 25 Posts
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    stephanieemma
    • #8
    • 6th Aug 18, 3:34 PM
    • #8
    • 6th Aug 18, 3:34 PM
    Thanks for this, it's what I suspected.
    I have been keeping my own spreadsheet and am now moving on to FreeAgent so pretty clear what's what - I pay myself a small salary, have some expenses, and want to take another dividend before I stop working for a bit. My profits are likely to be more than 4k when I get my next two invoices paid, I was just checking I could draw a dividend based on CURRENT profits.
    I am also on top of my self-assessment requirements as I have other income from property - just did last year's return which was higher-rate, so looking to ensure I don't fall into that bracket this year given I won't be working for a lot of it.
    Cheers
    Last edited by stephanieemma; 06-08-2018 at 3:36 PM.
    • Cook_County
    • By Cook_County 6th Aug 18, 7:01 PM
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    Cook_County
    • #9
    • 6th Aug 18, 7:01 PM
    • #9
    • 6th Aug 18, 7:01 PM
    Thanks for this, it's what I suspected.
    I have been keeping my own spreadsheet and am now moving on to FreeAgent so pretty clear what's what - I pay myself a small salary, have some expenses, and want to take another dividend before I stop working for a bit. My profits are likely to be more than 4k when I get my next two invoices paid, I was just checking I could draw a dividend based on CURRENT profits.
    I am also on top of my self-assessment requirements as I have other income from property - just did last year's return which was higher-rate, so looking to ensure I don't fall into that bracket this year given I won't be working for a lot of it.
    Cheers
    Originally posted by stephanieemma
    That's good; so you are already familiar with the accruals method of accounting - which is a big step.
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