Corporation Tax Query
Discussion
Say you work as a 'Management Consultant' and as a result of this have no real outgoings (only minor such as postage, letterheads, etc).
Annual incomings are £100,000.
At the end of the year, due to the £100,000 all being profit, you are going to be stung for £ 19,000 corporation tax (I think, 19% of £100,000).
How do you go about reducing this ? i.e, showing the company is not making as much profit as it is ?
Annual incomings are £100,000.
At the end of the year, due to the £100,000 all being profit, you are going to be stung for £ 19,000 corporation tax (I think, 19% of £100,000).
How do you go about reducing this ? i.e, showing the company is not making as much profit as it is ?
Do you have any assets in the business - desk, computer, shelves, telephones etc etc etc? You can claim capital allowances at 40% on the basic cost of these in the year they were purchased and 25% per annum on the reducing balance thereafter.
Are you not paying youself a salary from the business (as opposed to dividends). Proper salary (which would be subject to PAYE and Class 1 NI) is a fully allowable deductable expense in the business. At the very least you should be paying yourself a salary to take you up to the tax threshold - £4,745 this current tax year. In that way, the £4,745 salary is deducted from the business profits, thereby reducing the Corporation Tax bill - and of course, since it's below the income tax and NI limits, no PAYE or NI is due.
Obviously, any other income you have from the company (presumably dividends)may be liable to income tax - but that would be handled by you personally underv the Self Assessment sysytem.
Also, is IR35 an issue?
PS - have you not discussed this with your accountant yet?
>> Edited by Eric Mc on Wednesday 1st December 15:07
Are you not paying youself a salary from the business (as opposed to dividends). Proper salary (which would be subject to PAYE and Class 1 NI) is a fully allowable deductable expense in the business. At the very least you should be paying yourself a salary to take you up to the tax threshold - £4,745 this current tax year. In that way, the £4,745 salary is deducted from the business profits, thereby reducing the Corporation Tax bill - and of course, since it's below the income tax and NI limits, no PAYE or NI is due.
Obviously, any other income you have from the company (presumably dividends)may be liable to income tax - but that would be handled by you personally underv the Self Assessment sysytem.
Also, is IR35 an issue?
PS - have you not discussed this with your accountant yet?
>> Edited by Eric Mc on Wednesday 1st December 15:07
Eric,
Pay myself £4,800 & rest in dividends.
Spoke to my accountant who said everything you have said.
Basically, when I started up, I (wrongly) understood that I only paid tax on what I drew out of the business account, i.e, if I earn't £100k but only drew £50k, I would basically pay 19% tax on the 50k I drew.
Didn't know about corporation tax, and hence came as a bit of a shock. Hence was just thinking for next year if there were ways of reducing this.
If there isn't, well hey ho, but if there is then I'll have the money instead of giving it away.
Pay myself £4,800 & rest in dividends.
Spoke to my accountant who said everything you have said.
Basically, when I started up, I (wrongly) understood that I only paid tax on what I drew out of the business account, i.e, if I earn't £100k but only drew £50k, I would basically pay 19% tax on the 50k I drew.
Didn't know about corporation tax, and hence came as a bit of a shock. Hence was just thinking for next year if there were ways of reducing this.
If there isn't, well hey ho, but if there is then I'll have the money instead of giving it away.
PetrolTed said:
Around 10,000 mile per annum, so not enough to write off that kind of money.
>> Edited by hobo on Wednesday 1st December 12:04
No, but surely you're claiming the mileage?
Yes.
What I am trying to say is though, that if the company turns over £100k and say I have £10k expenses, then I am still paying corporation tax on the other 90k.
I just wondered is there was a way of 'disguising' the profitability of a business somehow ?
Now that WOULD be fraud.
Using another company to bill your present one only transfers the income from one company to another - which, of course, would have to pay its own CT bill on its profits anyway. Obviously, having a two company set-up could be manipulated to split incomes between the two companies and thereby make more effective use of Nil CT bands and 19% thresholds etc. HOWEVER such a move would more than likely be considered to be an "artificial construct" by the Inland Revenue and would not be allowed, even if the transactions were all legitimate and above board.
Using another company to bill your present one only transfers the income from one company to another - which, of course, would have to pay its own CT bill on its profits anyway. Obviously, having a two company set-up could be manipulated to split incomes between the two companies and thereby make more effective use of Nil CT bands and 19% thresholds etc. HOWEVER such a move would more than likely be considered to be an "artificial construct" by the Inland Revenue and would not be allowed, even if the transactions were all legitimate and above board.
Dividends are not really a loophole at all. They are fundamentally different to any other sort of "remuneration" from a business. In fact, they are not remunerationa at all and should never be looked on in that light. Dividends are the return on the investment of the shareholder in the company in which they have bought shares. They are a distribution of the profits of the company. The "loophole" people envisage in the drawing of "dividends" from the company stems from the fact that dividends are not liable to National Insurance. They are not liable to NI because NI can only be levied on "earned" income. Dividends are "investment" income and are only subject to tax.
Don't forget the secretarial/cleaning duties of Mrshobo are deductable.
Other expenses landline, mobile phone, internet access, Xmas gifts to suppliers clients, company AGM can be held anywhere you like, so long as business is conducted every day of the AGM then it should all be deductible (Barbados board meeting).
Other expenses landline, mobile phone, internet access, Xmas gifts to suppliers clients, company AGM can be held anywhere you like, so long as business is conducted every day of the AGM then it should all be deductible (Barbados board meeting).
Buy a new (or at least ex-demonstrator) company car with CO2 emmission less than 120g. Mr Brown is giving 100% capital allowances I understand through to 2008. The Toyota Prius is very green, hybrid, cost you nowt to run, that'll get rid of £17,000. The list includs the SMART, and the eco-diesel versions of the Peugeot 206 (including station wagon) Ford Fusion and Fiesta, Astra (I think, it did have the old one)and the usual suspects at the bottom end of the car market. Tax concessions as a company car driver too on these litle eco warriors. May not be prestige in the traditional sense but keeping money from HM Govt makes me feel good. I bought an Audi A2 TDi (119g).70mpg and can feel smug about not destroying the planet, so much so I bought a Lotus to go with it.
Buy a new (or at least ex-demonstrator) company car with CO2 emmission less than 120g. Mr Brown is giving 100% capital allowances I understand through to 2008. The Toyota Prius is very green, hybrid, cost you nowt to run, that'll get rid of £17,000. The list includs the SMART, and the eco-diesel versions of the Peugeot 206 (including station wagon) Ford Fusion and Fiesta, Astra (I think, it did have the old one)and the usual suspects at the bottom end of the car market. Tax concessions as a company car driver too on these litle eco warriors. May not be prestige in the traditional sense but keeping money from HM Govt makes me feel good. I bought an Audi A2 TDi (119g).70mpg and can feel smug about not destroying the planet, so much so I bought a Lotus to go with it.
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