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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I have drawn more than my profit this year. I was in profit

Resolved Question:

I have drawn more than my profit this year. I was in profit last year and will still be in a positive value in company bank account. What should I do ?
I am limited company and I am the only employee/ director
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

Provided you have retained earnings from previous year and they are sufficient to cover the excess drawing, then you can treat this as dividend paid out of taxed profits retained.

Example... retained profits from previous year say £10,000
Profit after tax this year £7,000
Drawings this year £10,000 (dividends)

Retained profit end of this year (10,000+7,000-10,000) = £7,000

This should work...

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Hi

I have finally got a handle on what I have done with my figures.

It looks like I am ok going the route of using the profit from last year to pay for the lack of profit to pay my dividends. There is the complication that I have also taken a Directors Loan of £5000 to be paid back in the first 6 months of new financial year. I think this is the best way to keep the company with some retained profit this year and still comply legally ( i think)

Can you see any problems with this as a way forward?

Thank you for your help!

Gary

Expert:  taxadvisor.uk replied 2 years ago.

Gary, thank you for your reply.

Withdrawing money as a loan and making director's account overdrawn in the balance sheet has tax implications. You have stated that you have done so to maintain some retained profit. I would like you to reconsider that after you have considered the tax implications..

My preference would be to maximise dividends bearing in mind that they are out of taxed profits and no tax implication provided your personal income remains within basic rate tax band.

More information on this can be found here

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/ct/returns/director-loan.htm.

I hope this is helpful..

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.

Best wishes.

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