Dividend for New Company

BIG WAL

My client was out of work all of this tax year, until he set up a new company at end January. Trading
as a consultant started this month and it's going very well, with net profit for March likely to be £10k+.

Question is can he declare a dividend before 6th April so it falls in the 2011 tax year, on the basis of
work invoiced but not yet paid ? ie Would the fact that there's a substantial debtor be counted as
"Distributable Profit" ?

Additionally, would CT on the profit have to be taken into account in working out Distributable Profit ?

I'm thinking salary of £4k - (No tax due as had no income, and no NI as he's a director) plus Dividend of £5k

jamesm96

BIG WAL wrote: »

Question is can he declare a dividend before 6th April so it falls in the 2011 tax year, on the basis of work invoiced but not yet paid ? ie Would the fact that there's a substantial debtor be counted as "Distributable Profit" ?

So, if I've understood your question, you're asking if the fact that customers haven't paid will affect ability to pay a dividend, yes? In which case, no; no problem at all. As long as the post-tax profits in the accounts are sufficient then declare away!

BIG WAL wrote: »

Additionally, would CT on the profit have to be taken into account in working out Distributable Profit ?

Yep

BIG WAL wrote: »

I'm thinking salary of £4k - (No tax due as had no income, and no NI as he's a director) plus Dividend of £5k

If he's earned nothing else through the rest of the 11-12 tax year I'd want to be showing as much salary as possible to get the best Corporation Tax saving; £7,072 is the max you can earn before suffering any tax or NI payments or £589 per month.

jamesm96

BIG WAL wrote: »

Question is can he declare a dividend before 6th April so it falls in the 2011 tax year

Just a thought; if he's been claiming tax credits during the year then increasing his income by whatever amount of dividend gets declared might result in him needing to pay some of the TCs back? Or, indeed, if he hasn't been claiming tax credits then he's probably entitled!

BIG WAL

Many thanks - that's very helpful. I'll check out the Tax Credits too.

BIG WAL

Interesting to note that it looks like it's not correct to say no NI on directors salary up to the Primary
Threshold (7072pa). It's restricted pro-rata - in this case the 10 weeks to 31st March since
incorporation. So NI due on anything over 10 x £136 =£1360.

sloshed

Might be worth considering the following

1) Apply for NIC Holiday as a new business
2) Put through salary of £7000. Employees NIC would be payable of 680 approx
3) This would reduce the CT payable by 1400 approx, 10000 * 20% = 2000 - 3000 * 20% = 600 and producing an overall saving of (1400 - 680) 720
4) Pay a dividend of £3000 if there is not adverse effect on tax credits

reader

BIG WAL wrote: »

Question is can he declare a dividend before 6th April so it falls in the 2011 tax year, on the basis of
work invoiced but not yet paid ? ie Would the fact that there's a substantial debtor be counted as
"Distributable Profit" ?

Additionally, would CT on the profit have to be taken into account in working out Distributable Profit ?

I'm thinking salary of £4k - (No tax due as had no income, and no NI as he's a director) plus Dividend of £5k

Hi Big

Re: income from unpaid sales invoice; yes

Re: CT; yes

Re: salary; the most tax efficient salary for a shareholder-director is the secondary threshold for NIC which is £588/589 per month

I'm currently a level 4 student and am thinking about joining the MiP scheme when I have finished level 4 and become a MAAT; can I ask how long you have been on the MiP scheme and if you're a new MiP how easy you found it to meet all the registration and licenced MiP criteria? Thanks for your help.

BIG WAL

Hi Reader,

I'd certainly encourage you to become a MIP, which I've been for about 15 years. I would think the criteria might
have changed somewhat since then though. At the time I was doing bookkeeping for clients of a practice on a self
employed basis. So it was no problem to show relevant experience and get references from that firm to enable me to become a MIP.

Knowledge was gained on tax gradually by attending CPD events and also studying ATT. In time I was able to demonstrate competence to deal with the different areas I'm now licensed in.