Don’t miss out free tax from your company

Are you a limited company owner so, act now or lose out two thousand pounds tax-free as a business accountant my team spent all day long helping business owners on their journey particularly around this time of year we see a lot of people missing out on an opportunity as a limited company owner to use the dividend allowance so this is an allowance it’s kind of use it or lose it I’m going to dig into the details in a minute but it allows you to have 2 000 pounds of dividends tax-free now quite often as a limited company that’s going to be from your own company but it could be from any different companies and other dividends income that you may have. So, let’s have a quick recap of who can have dividends for a start because we think that’s an important place to start now dividends are paid to shareholders of a company it’s just a way of getting the profits out.

As a limited company owner, generally you’re the owner because you own the shares which mean you’re entitled to dividends now you can only have a dividend if you’ve made some profits I don’t want to get too technical on that but it’s a really important thing to note because we going to tell you about some things here from like make sure you use this allowance, but it all comes back to, can you legally have a dividend what they call to declare a dividend out of the company because you don’t always need the cash. So let’s do a very brief example of how this might work you’ve taken 10 000 pounds into your company you’ll pay tax currently at the time at 19 percent inside the company so let’s say you had no other expenses so ten thousand pounds 19 hundred pounds worth of tax you got 8100 pounds to come out and that’s a very straightforward simple example. It’s really the case but let’s just say that is the case you can then decide to pay a dividend in the majority of cases and again with all these videos I’m going to say the caveat of course it depends on your personal situation and everything else but generally in this easy scenario that’s where we are so you can then declare a dividend so you might look and say well I’ve got no other income from dividends from anywhere else so I’ve got this two thousand pound allowance that I need to use before we get to the 5th of  April, so you can declare yourself a dividend then of 2000 pounds and note that in your accounts and of course then, in theory, the best thing to do would be then to take the money you want to enjoy the 2000 pound in your pocket so you can see the company’s paid its tax on it already so you when it comes out to you, you’re using your allowance and there’s gonna be no further personal tax which is great and that’s important.

Now one of the key things to understand is it is actually possible that you don’t have to take the 2000 pounds out of the bank so you might say well and this is one of the key areas where we actually see that you end up losing the allowance is people like well we don’t want the 2000 pound we want to reinvest in my business, but on paper, you could have had the dividend so it’s possible to put the right paperwork in place some meeting minutes and things like that to just say look we’ve sat and had a board meeting with ourselves most of the time and we wanted to declare this dividend before the 5th of April, so whatever date that may be and note it in the accounts, so in your bookkeeping, you’d normally put that to. 

You know you’ve paid a dividend and the other side of that goes to your director’s loan which is kind of a pot of money that’s owed back to you a later date so sort of earmarks in your accounts so if you imagine using that example  we just told you about you’d have 10000 pounds of profit and you know you’d have a liability for later of 1900 pounds tax that you’ve got to pay and then there you’d have a a little bit in the accounts now earmarked for 2 000 pounds in your director’s loan account that’s owed back to you later and if you’ve got the right paperwork in place it counts as being paid in this tax year before the 5th of April so for your personal tax return if you were doing one of those you would actually put those 2000 dividends on that tax return even though you hadn’t physically had the cash and that’s quite an important thing to understand and there’s lots of tax law that backs up these type of things but just to keep it really top level they’re the kind of things you want to do if you’ve got an accountant definitely speak to them about it the main purpose of this video really is to make sure that you’re not going to miss out by not thinking about it because if you’ve got one of these kind of traditional old-school relationships or you’re just seeing your account once a year and that might not be into the middle of next year then you could miss out on this allowance and it’s for those people that think we don’t want to pay , you know we don’t necessarily want to pay or might not realize that they could declare a dividend so check your records have a look and do get professional help.

 If you have got that to hand so that’s kind of the dividend allowance in a basic but before you go there’s another couple of points we want to mention on this and the first one is you can also think about other people in the business that might have shares so if you’ve got um boyfriend, girlfriend, wife whoever else who’s got a small shareholding you could consider whether you could use some of their allowance of their 2000 pound dividend because everybody’s got one  to pay some more of those dividends out it’s especially good and you see it quite often in sort of husband-wife scenarios where we’re sharing finances or you know boyfriend-girlfriend we’re sharing those finances internally so it doesn’t matter who really gets taxed on it because it’s all got into a joint account anyway so there’s those kind of opportunities then to look for is there anyone else that we can pay this to it’s also possible, to change that shareholding to make sure that’s possible in the future so definitely speak to a professional about that one but that is possible now there’s a couple of tax traps we just want to mention in this the first one is making sure that you can actually pay those dividends.

 So you need to account for future tax so we talked about in that scenario the corporation tax there at 19 you need to consider that you also might need to consider if you’re looking at your accounts the things like depreciation and some of these other accountancy adjustments will actually affect the amount of dividend that’s possible and again we don’t get too technical we kind of just want to get you thinking about these things that are possible but there are things you’ve got to bear in mind because otherwise you could be in a position where that dividend was not actually payable so that’s quite an important piece the other tax track to mention is if you’ve got dividend income from other sources so you invest in the stock market and get paid dividends and all these kind of things you might not have a full two thousand pound at all you know if you’ve got some other you know you’ve inherited some shares that pay you decent dividends every year for example it’s going to eat into that amount so just make sure you’ve given it some thought as always the best thing to do is check with a professional but again just when you’re thinking about it so they’re the main areas that will allow you to use this allowance and get the most out of it before the 5th of April.

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