Showing posts with label profits. Show all posts
Showing posts with label profits. Show all posts

Tuesday, November 15, 2011

Dividends: dos and don'ts

Distributable profits

Dividends must be paid out of distributable profits and directors must prepare relevant accounts to confirm the position. If it later transpires there are not enough distributable profits and relevant accounts were not prepared then the dividend is illegal and repayable, and should be disclosed as such.

Thursday, September 8, 2011

The Tough Times Business Checklist

With business conditions deteriorating for a lot of firms, now could be the time to review the way you run your business.

With the help of consultancy group 2020 we have put together a "tough-times business checklist" that will allow you to ensure that you stay on the right track during the turbulent times ahead:

  • Review your Budgets and set realistic and achievable targets for the year. 
  • Get rid of can’t pay/won’t pay customers. 
  • Review debtors list and chase up overdue invoices. 

Friday, March 11, 2011

How much tax do you pay on dividends?

Taxation of dividends in the UK has always been confusing. The rates people mention are actually different from the effective rates for some legacy reasons. As if tax was not complicated enough...

There used to be 2 dividend tax rates but this changed last year. There are now 3 different rates depending on your tax band. And with the introduction of the new band at 50% called top rate income tax threshold a new band was introduced as well for dividends. Here they are:
  • 10% on dividends for income received below the higher rate income tax threshold (£37,400)
  • 32.5% on dividends for income received above the higher rate income tax threshold
  • A new 'additional' dividend tax rate of 42.5% applies to individuals earning £150,000 or more from April 6th 2010 onwards.
However the calculation is a bit convoluted. The actual rate of tax you pay in dividends is lower than these headline rates, as dividends automatically receive a 10% tax credit. This is to take into account the fact that you will already have paid corporation tax on your company profits.

Sunday, January 23, 2011

Extracting profits from your company

One of the benefits of running your own company is that it gives you a lot of flexibility when it comes to extract profits from the firm. As a sole trader, whatever profit you make is taxed immediately at a rate that depends on the amount of profits but that can now be as high as 58% if we include Class 4 National Insurance Contributions.

If you own a limited company however you have a lot more flexibility and if you are not needing the cash now, you can reduce your tax considerably. In most cases it's just a matter of following those simple steps:
  1. If, as a director, your only revenue comes from your company, you can extract up to the personal allowance without paying personal taxes and that cost is tax deductible for your company. That amount is currently £6,475 but it should increase up to £10,000 in the next few years. Keep in mind however that if your annual salary is £5,715 or more you will incur some national insurance contribution costs. This is why most directors extract just that amount every year: no tax, no NI and allowable expense for the company.