Company year end tax and Self Assessment tax?

[maverick18]

Hi all .. I opened up a ltd company in Oct 2010 and until the end of March 2011, the A/C statements show an income of 42k and expense of 32k (excludes 3k paid for VAT).

If I split the 32k as 6k salary and 24k dividends, would it mean that I pay no personal tax for the year 2010/2011? I had no personal or any other income prior to Oct 2010.

If I then pay myself a salary of ~7k and dividends of ~35k for the period April 2011 to March 2012, does it mean that I pay no personal tax for the year 2011/2012?

How would the above have an effect on Company's Corp tax (or NI contributions, if any)?

In my case, is it advisable that I file the returns for the period Oct 2010 to March 2011 and then start afresh for the financial year 2011/2012?

Many thanks

[SueEllen]

You know a quick email to your accountant would get you the right answer after all you are paying them for it.

If they can't respond to you within the same day (your question is easy for them to answer) then change firm.

[Craig@Clarity]

Hi all .. I opened up a ltd company in Oct 2010 and until the end of March 2011, the A/C statements show an income of 42k and expense of 32k (excludes 3k paid for VAT).

Your company financial year and personal tax year (fiscal year) are 2 separate periods to account for. If your turnover in your company so far is £42k and expenses notched up is £32k, then your company has made profit of £10k which is subject to Corporation tax so far of £2,100 (21% of £10k).

If I split the 32k as 6k salary and 24k dividends, would it mean that I pay no personal tax for the year 2010/2011? I had no personal or any other income prior to Oct 2010.

However, reading further, I would assume your only expense in the company (which does not include dividends) is salary of £6k, so in fact, your company profit is £36k (£42k - £6k) which is subject to CT at 21% (£7,560) which leaves profit after CT of £28,440. Out of the £28,440 you have taken £24k leaving a retained profit in the company of £4,440 to carry over to April.

If you personally had no income in the last tax year, you'd pay no tax on a salary of £6k and £24k net dividend.

If I then pay myself a salary of ~7k and dividends of ~35k for the period April 2011 to March 2012, does it mean that I pay no personal tax for the year 2011/2012?

Yes if the dividend of £35k you've quoted if the Gross dividend. The equivalent Net dividend (which is the amount you pay yourself from the company) is £31,500 k (Gross less 10%)

How would the above have an effect on Company's Corp tax (or NI contributions, if any)?

In my case, is it advisable that I file the returns for the period Oct 2010 to March 2011 and then start afresh for the financial year 2011/2012?

Many thanks

Shouldn't be any need to once you've made the distinction between a limited company year end and a personal tax year.

[Scrag Meister]

Hi all .. I opened up a ltd company in Oct 2010 and until the end of March 2011, the A/C statements show an income of 42k and expense of 32k (excludes 3k paid for VAT).

If I split the 32k as 6k salary and 24k dividends, would it mean that I pay no personal tax for the year 2010/2011? I had no personal or any other income prior to Oct 2010.

If I then pay myself a salary of ~7k and dividends of ~35k for the period April 2011 to March 2012, does it mean that I pay no personal tax for the year 2011/2012?

How would the above have an effect on Company's Corp tax (or NI contributions, if any)?

In my case, is it advisable that I file the returns for the period Oct 2010 to March 2011 and then start afresh for the financial year 2011/2012?

Many thanks

1. 3k VAT? That strikes me as insufficient. If Gross income, from service rendered is 42k I would expect VAT to be in the region of 6-7k.
2. What were the 32k expenses? Salary, Hardware purchases?
3. CT is calculated as 20%(Craig?) of profit, how you disperse it has nothing to do with what you pay as CT, unless you pay into a pension but then its an expense..
4. Sorry I'm not sure of the process to change your financial year.

[Craig@Clarity]

1. 3k VAT? That strikes me as insufficient. If Gross income, from service rendered is 42k I would expect VAT to be in the region of 6-7k.
2. What were the 32k expenses? Salary, Hardware purchases?
3. CT is calculated as 20%(Craig?) of profit, how you disperse it has nothing to do with what you pay as CT, unless you pay into a pension but then its an expense..
4. Sorry I'm not sure of the process to change your financial year.

1. Could either be timing issues. The liability might be £6k - £7k and only £3k paid or the OP didn't register from the date he started trading and invoicing. We just don't know yet
3. CT is calculated at 21% up to 31 March 2011 and then switches to 20% on 1 April 2011.
4. File a AA01 at Companies House.

[maverick18]

1. Could either be timing issues. The liability might be £6k - £7k and only £3k paid or the OP didn't register from the date he started trading and invoicing. We just don't know yet
3. CT is calculated at 21% up to 31 March 2011 and then switches to 20% on 1 April 2011.
4. File a AA01 at Companies House.

Many Thanks Craig.

The 32k I mentioned above are debit transactions per bank statements and not expenses. Sorry, it seems my use of incorrect term there caused confusion.

Yes, the liability is ~7k, out of which 3k was paid out in March.

This is a relief. I had taken out Directors loan (apart from regular dividends each month) in the period Oct 2010 to March 2011 that I believe I can now classify as Dividends. Since I did not have any income prior to Oct 2010 I would not pay any personal tax (~6k salary + ~24k divs) for the year 2010/2011.

Now for the year 2011/2012 I would again not pay any personal tax if I limit my salary to ~7k
and divs to ~35k.

Am I correct on both the above?

I am curious though is there a Max. amount that a Company is allowed to pay as salary/div without complicating matters?

If my company pays me ~30k as salary each year, would it not be tax deductible? (ofcourse I would then have to pay a higher personal tax on this salary)

[northernladuk]

Sorry, it seems my use of incorrect term there caused confusion.

For this reason plus the fact you are dealing with your income in very generic numbers here I would also suggest as SE does to use an accountant and not rely on high level wooly numbers on a forum to get it right.