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What is 'retained profit'?

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    What is 'retained profit'?

    On my "Director's Report and Financial Statements" document for the company tax year ending December 2009, I was making an attempt to follow it through.

    The document lists figures for 2009 against 2008 and looks like this (numbers anonymised):


    ____________________________________ 2009 ______ 2008
    Turnover ___________________________ 90,000 _____ 80,000
    Gross Profit _______________________ 30,000 _____ 60,000
    Operating Profit ___________________ 10,000 _____ 50,000
    Profit for Year _____________________ 8,000 _____ 40,000
    Dividends __________________________ 20,000 _____ 15,000
    Retained (loss)/profit for the year (12,000) ____ 25,000
    Retained profit brought forward ____ 25,000 _____ -
    Retained profit carried forward ____ 10,000 _____ 25,000


    I'm not quite clear what it's saying... seems like I made a loss in 2009 but some 'uncounted' profit from 2008 was added on giving me an overall profit. How's that work, surely all profit in 2008 is accounted for when paying corporation tax for that year?
    Originally posted by MaryPoppins
    I'd still not breastfeed a nazi
    Originally posted by vetran
    Urine is quite nourishing

    #2
    Originally posted by d000hg View Post
    On my "Director's Report and Financial Statements" document for the company tax year ending December 2009, I was making an attempt to follow it through.

    The document lists figures for 2009 against 2008 and looks like this (numbers anonymised):


    ____________________________________ 2009 ______ 2008
    Turnover ___________________________ 90,000 _____ 80,000
    Gross Profit _______________________ 30,000 _____ 60,000
    Operating Profit ___________________ 10,000 _____ 50,000
    Profit for Year _____________________ 8,000 _____ 40,000
    Dividends __________________________ 20,000 _____ 15,000
    Retained (loss)/profit for the year (12,000) ____ 25,000
    Retained profit brought forward ____ 25,000 _____ -
    Retained profit carried forward ____ 10,000 _____ 25,000


    I'm not quite clear what it's saying... seems like I made a loss in 2009 but some 'uncounted' profit from 2008 was added on giving me an overall profit. How's that work, surely all profit in 2008 is accounted for when paying corporation tax for that year?


    IANAA.

    It looks like you had a surplus of cash in the company in 2008 that was profits not taken as dividends. This was carried forward into 2009 and in effect set against the losses you made that year. You took out more in divi's than you earnt in 2009 but these were largley paid for from the retained profit carried over from 2008. CT on the retained profits from 2008 would have already been paid and it should not count towards you CT bill in 2009..
    Last edited by DaveB; 12 June 2010, 17:07.
    "Being nice costs nothing and sometimes gets you extra bacon" - Pondlife.

    Comment


      #3
      retained profit is AFTER corporation tax and dividends. In your example, the numbers do not add up correctly!

      Comment


        #4
        Everything down to the Profit for Year bit is your income statement.

        The net profit for the year is available for distribution to shareholders by way of dividend. If not all of the profit was distributed during the year (or too much was...) the difference is stored in the balance sheet as Retained Profit (or loss).

        As a going concern, your business is able to carry forward this retained profit to the next financial year where it is still available for distribution.

        Think of it as an internal bank account to keep a record of what the company owes you (as shareholder).

        Comment


          #5
          Retained profit is profit after tax that the company has in reserve. At the end of each financial year the total retained profit is "carried forward" to the next FY.

          You had £25k retained profit for 2008 possibly because taking any more dividends would have pushed you into the 40% tax bracket. It is always sensible to keep some retained profit within the company.

          ZED.

          Comment


            #6
            Turnover in 2009 minus expenses in 2009 = net profit

            Net profit minus corporation tax (21% of net profit) = profit after CT

            Profit after CT minus dividends paid in 2009 = retained profit for 2009

            Retained profit for 2009 + any retained profit left from 2008 = retained profit carried forward to 2010

            Retained profit carried forward to 2010 = further dividend you can pay if you wish.

            If you make a loss in 2009, there is no CT to pay. In fact, you can carry it back to 2008 and claim some tax back.

            Comment

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