corporation tax

[baguaman]

hi hope you guys can help..

We have just finalised accounts and realise we have made far more turnover than imagined..

This leaves us with a larger than imagined corporate tax bill..

does someone have a contact of a tax specialist who can help us reduce this liabilty..

thanks in advance

[smartie]

you're taxed on profit, not turnover. Are we talking £250K plus profits?

[zadumbreion]

smartie said:

you're taxed on profit, not turnover. Are we talking £250K plus profits?

Why have you asked that question? I mean - what's special about that figure?

[Eric Mc]

Taxable profits up to £300,000 are currently taxed at a rate of 21%. Profits over £1.5 million are taxed at £28%. Profits between those two figures are taxed according to a formula which equates to a Corporation Tax rate of £29.75%

[zadumbreion]

Eric Mc said:

Taxable profits up to £300,000 are currently taxed at a rate of 21%. Profits over £1.5 million are taxed at £28%. Profits between those two figures are taxed according to a formula which equates to a Corporation Tax rate of £29.75%

Hi Eric.

Sure - but it sounded like Smartie had something else in mind...?

[Eric Mc]

There's nothing particularly special about the £250,000 amount. It all changes at £300,000.

[smartie]

All i meant was are your profits are getting into that area (ie if it was £250K with largish direcotrs salaries/bonuses then it could be more like a £300K+ profit).

"A lot of tax" is relevant and someone with profits of £40000 might think they pay a lot of tax.

A lot of the loan/benefit trust etc scheme's aren't interested/viable unless profits are in this region.

[Eric Mc]

Exactly, if you are in the £250,000 profit region and growing, you should start planning for the eventuality of having to pay larger CT bills - and taking the necessary steps to avoid it if possible.

[baguaman]

thanks for the interest... yes we are above the 300k and about to be hammered at 28% minus some relief

[smartie]

could be worth talking to a corp tax specialist - ask you accountant if he can receommend anyone?

[Eric Mc]

baguaman said:

thanks for the interest... yes we are above the 300k and about to be hammered at 28% minus some relief

It will be at the higher marginal rate, not 28%.

[baguaman]

computation shows x30% and x28% percent plus a chunk of relief

[Eric Mc]

That's the formula at work. If you apply the tax as calculated backwards to the original taxable profit, you will find that it should equate to a CT rate of 29.75%

[baguaman]

seeing as we are only a small company ..am i wrong to see this as a 49 percent rate of tax !!..

dividend 19% plus ct 29%?

[Bernie-the-bolt]

If your year end hasn't actually passed yet you could pay a lump sum into your pension to get under the magical £300k.......?

Just a thought.

[kryten]

smartie said:

could be worth talking to a corp tax specialist - ask you accountant if he can receommend anyone?

Must admit, have spoken to a few over the last couple of years and none of them have really managed to come up with anything 'magical' to reduce the CT bills

Did bung a ton of cash into pension last year: just before the stock market came tumbling down

[BigAlinEmbra]

baguaman said:

seeing as we are only a small company ..am i wrong to see this as a 49 percent rate of tax !!..

dividend 19% plus ct 29%?

Yes. A dividend isn't a tax.

[Eric Mc]

Dividends are subject to Income Tax (not Corporation Tax) so the rate paid on the dividend depends on the individual's overall levels of income during the tax year in which they received the dividend(s).

If they are a basic rate tax payer, they pay absolutely NOTHING on the dividend. If they are higher rate payers, they pay tax at a special dividend rate of 32.5%.

So, a basic rate tax payer receives a dividend of £10,000 into his hand. He has to Gross Up the dividend for self assessment tax declaration purposes (i.e. adding on the NOTIONAL 10% Tax Credit attached to all dividends) - so he declares the dividend as a gross dividend of £11,111.11.
He pays NO INCOME TAX at all on this income.

If he was a Higher Rate tax payer, he pays tax at 32.5% on the £11,111.11 i.e. £3,611.11

[Deva Link]

Eric Mc said:

Dividends are subject to Income Tax (not Corporation Tax)

...but they're paid from after-tax profits. So if it's your own company, it's broad as it's long.

There's a point (I guess it's over £300K?) when you'd be better off just paying yourself more as salary / bonus.

[Eric Mc]

True, but the sums still work out in favour of running your activities throgh a limited company up to certain levels of profit and personal income (although I can't remember the figures off hand). These levels have swung about a bit over the past six or seven years as Gordon Brown and Alistair Darling have mucked about with limited companies and their tax bands and thresholds a lot.