Income tax refund - money in business bank account

[TheCyclingProgrammer]

When dividends or salary are paid to my personal account, the amount is taken after tax out of my company accounts - I guess that is what I'm doing wrong.

In a normal company, employees receive salary net of tax/NI, so why should my company be any different?

You really need to speak to an accountant I think but I'll try and explain it for you.

Firstly, if you're paying yourself a regular salary and have set up a payroll then you are quite correct that any income tax payable on your salary will be kept by YourCo and remitted to HMRC on your behalf - that's the whole point of PAYE. At the end of the year you get a P60 and you use this to fill out an Employment sheet on your self-assessment. There shouldn't be any tax due as it has all been paid but there might sometimes be a small correction due to an over/underpayment.

Dividends are different. There is a 10% tax credit which cancels out the basic rate tax on dividends and the money you withdraw from the company is the net amount. For example, a dividend of £900 would be declared and treated as net of the 10% tax credit. For the purposes of calculating your gross income, it would be £1000 taxed at 10%, with the £100 tax being cancelled out by the tax credit. So you transfer £900 to your personal account.

If you're a higher rate tax payer, then any dividends above the threshold would be taxed at 32.5% but you still get the 10% tax credit. 22.5% of the gross amount is the same as 25% of the amount net of the 10% tax credit so using the same numbers, if you had £900 of dividend income above the higher rate threshold, this would still be treated as £1000 gross and you would now owe 25% of the net amount in higher rate tax (£225).

You would still transfer the full £900 to your personal account and put the £225 aside somewhere (e.g. a savings account).

You *could* leave the £225 in the company - you don't have to physically withdraw any money from the business account when you declare a dividend. If you declare a dividend, any money you do not draw should be allocated to your director's loan account to show that the company owes you that money. You are then free to draw from the DLA when you need to.

[dty]

How do you know that - the OP specifically makes reference to "dividends or salary".

Fair point

[ninjamouse]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

[northernladuk]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

Time for a new accountant. If you don't trust him implicitly and feel comfortable going to him in the first instance and getting a quick response then you need to bail very quickly. Especially when you are struggling to understand this.

Clare from InTouch has already posted in this thread and is forum advisor of the year so is most definitely a good bet. Tell her I sent you so I get the Pony and not TF.

SJD is the largest in the country and have offices all over the place. I am with them and very happy with them.

Nixon Williams also posts on here and would be another I would consider if I was looking again.

Speak to one (or the both) of the above and get yourself a proper accountant immediately. Getting the difference between company and personal money mixed up is going to cost you one hell of a lot more than either of the suggestions above.

[Clare@InTouch]

Sorry I meant corp tax from company account not capital gains tax before. Sorry for any confusion.

I'll need a sit down chat with my accountant. Thanks for the advice TheCyclingProgrammer.

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

My accountant has just been through my accounts and didn't mention it, which is slightly worrying.

Dividends are paid net, so if the value was £1,000 gross it's correct that the company accounts show £900 and you received £900.

Your tax return though will show £1,000 with tax paid of £100. If you're a basic rate taxpayer then nothing further is due. If you're a higher rate taxpayer there will be more to pay, which may well be what's happened.

[TheCyclingProgrammer]

My salary is under then PAYE and NI limits. So my dividend payments are incorrect, my company have been transferring the net amount rather than the declared dividend (£900 in your example).

For all dividends up to the higher rate threshold, the net amount and the declared amount are the same.