Tax year for dividends

[Graham]

I've asked around about this and also searched a fair bit and not found anything stating it (maybe not searching for the right words?). Just looking for more opinions on it to make sure what I've been told so far matches up.

I'm now just shy of 3yrs into contracting and have been with the same accountant all that time (in process of changing accountant from beginning of new company year though).
Until very recently I had always assumed that for my personal tax return the dividends were calculated based on personal tax year (April to april).
However, upon having a meeting with my accountant it transpired that they were working by company tax year. I hadn't noticed this before because my calculations had all matched theirs because of what dividends I had taken and when.

However now it's left me in a dilemma, I could really do with taking a dividend to cover some costs (buying a house) but I don't want to go into the higher tax bracket as it'll cost me around 30% in tax and student loan.
According to accountants my tax allowance resets at start of Feb (new company tax year), however I don't want to just believe them, take a dividend and get a big tax bill when I could possibly borrow the money from parents and pay them back in April instead.

[northernladuk]

Are you sure you haven't gotten yourself confused between personal tax and company tax when your accountant was explaining everything?

[tractor]

...

I've asked around about this and also searched a fair bit and not found anything stating it (maybe not searching for the right words?). Just looking for more opinions on it to make sure what I've been told so far matches up.

I'm now just shy of 3yrs into contracting and have been with the same accountant all that time (in process of changing accountant from beginning of new company year though).
Until very recently I had always assumed that for my personal tax return the dividends were calculated based on personal tax year (April to april).
However, upon having a meeting with my accountant it transpired that they were working by company tax year. I hadn't noticed this before because my calculations had all matched theirs because of what dividends I had taken and when.

However now it's left me in a dilemma, I could really do with taking a dividend to cover some costs (buying a house) but I don't want to go into the higher tax bracket as it'll cost me around 30% in tax and student loan.
According to accountants my tax allowance resets at start of Feb (new company tax year), however I don't want to just believe them, take a dividend and get a big tax bill when I could possibly borrow the money from parents and pay them back in April instead.

Are you sure they are accountants and not plumbers?

You and your company are separate entities. Your company year can be any dates you want them to providing you take the appropriate actions. They are entirely seperate from your personal tax year which, like everyone else in the country runs from April 6th to the next April 5th. For personal taxation purposes, the dividend payment date falls on the date the dividend was voted and for personal taxation, this is the important date and it determines which tax year the payment falls into. If you have taken drawings between an arbitrary date and the voting date, any such drawings must be treated as a Directors Loan and accounted for as such (which has a number of other connotations that you need to be aware of). At the voting date you are then able to adjust the Directors Loan Account and reduce it by any amount up to the amount of the dividend if you wish.

See the links on the right to get a better understanding. If what you wrote above is indeed your accountants advice and not a misunderstanding on your part, then yes, you really need to change them and the sooner the better.

[TheFaQQer]

According to accountants my tax allowance resets at start of Feb (new company tax year), however I don't want to just believe them, take a dividend and get a big tax bill when I could possibly borrow the money from parents and pay them back in April instead.

Fire them now. Don't wait until the new trading year, get someone competent in to do the job. This is one of the most basic things, and someone has messed it up.

Give InTouch a ring and tell Louisa I sent you their way - they are currently doing a discount of 25% off any catch-up fees if you sign before the end of January.

[Forbes Young]

I've asked around about this and also searched a fair bit and not found anything stating it (maybe not searching for the right words?). Just looking for more opinions on it to make sure what I've been told so far matches up.

I'm now just shy of 3yrs into contracting and have been with the same accountant all that time (in process of changing accountant from beginning of new company year though).
Until very recently I had always assumed that for my personal tax return the dividends were calculated based on personal tax year (April to april).
However, upon having a meeting with my accountant it transpired that they were working by company tax year. I hadn't noticed this before because my calculations had all matched theirs because of what dividends I had taken and when.

However now it's left me in a dilemma, I could really do with taking a dividend to cover some costs (buying a house) but I don't want to go into the higher tax bracket as it'll cost me around 30% in tax and student loan.
According to accountants my tax allowance resets at start of Feb (new company tax year), however I don't want to just believe them, take a dividend and get a big tax bill when I could possibly borrow the money from parents and pay them back in April instead.

Income tax is payable on dividend income (personal tax on personal income) so is included in your tax return for the tax year ended 5 April (payable by the following 31 January).
Dividends paid by the company are included in the Company Accounts but this is a separate exercise altogether.

Company

Here is an example of how it works hypothetically for a client with sales of £70k in a tax year:

Company Sales = £70k
Company Costs (incl £8k salary) = £10k
Company Profit = £60k
Company corporation tax = 20% of profit = £12k
Dividends left to draw = £48k
Corporation tax should be paid by the company

Personal Tax Position Tax year ending 5/4/15

Personal (self-assessment) tax is based on a tax year (6 April to 5 April) and must be paid personally (not by the company).

Contractors income = £8k salary plus £48k net dividends. The gross figure to enter on the tax return for dividends is 10/9 x £48k = £53.3k. Therefore total gross income = £61.3k.
As the higher rate tax threshhold is £41,865, income tax would need to be paid on £19.4k (approx. £4.9k). No tax would have been paid if the combined gross income was under £41,865 and no NI is payable on any dividend income.

If you set up a company pension scheme for yourself, then the contributions would be included in the company costs and this would of course lower the amount of corporation tax the company would pay. With any company cost, the tax effect is to effectively make the cost 80% (as 20% corporation tax saving is made).

Graeme Bennett ACMA MBA

[northernladuk]

Fire them now. Don't wait until the new trading year, get someone competent in to do the job. This is one of the most basic things, and someone has messed it up.

If we were absolutely certain what the OP is saying is true then I would totally agree. I have a feeling we are hearing the OP's version of things here. Bearing in mind there is a professional explaining something to the uneducated I have a feeling we need to hear the accountants view on this

Give Gorilla Accounting a ring and tell Jaime-Lee NLUK sent you their way - they are giving two months free to the first 100 applicants.

FTFY

[jamesbrown]

If we were absolutely certain what the OP is saying is true then I would totally agree. I have a feeling we are hearing the OP's version of things here. Bearing in mind there is a professional explaining something to the uneducated I have a feeling we need to hear the accountants view on this

Yes. This is so basic, that even a pretend accountant should get it right. There's a good chance that something has been lost in translation w/r to how dividends are accounted for in the company accounts versus SATR.

[TheFaQQer]

FTFY

Yeah, but who's going to listen to some has-been award winner? It's the current title holder that counts

[northernladuk]

Yeah, but who's going to listen to some has-been award winner? It's the current title holder that counts

[d000hg]

I've been caught out by this even after I aligned my company year April-March by the handful of days discrepancy between personal and company tax years, e.g. paying a year-end dividend on 3rd April and wondering why things don't add up

But I'm not an accountant!