How do dividends work?

Dividends are a type of income that a shareholder can take from the company.In order to calculate the dividend the company must have the distributable profits and these are the profit after tax.

Most important thing to consider in case of dividends is what the percentage of shareholding between the shareholders is. If the percentage is 50% each between two shareholders than both shareholders will receive equal dividends regardless of the workload, i.e. why the work needs to be distributed too as it might lead to conflict at the time of declaration of dividends. 

Dividends can be at any part of the year and it is entirely up to you as at the end of the day these are your own profits, but we recommend that you take dividends quarterly so that we can prepare the management accounts for you along with the VAT return and calculate the tax efficient amount for dividend for you.Our tax advisers recommend that you keep some profit in the company for tax planning and incase of fluctuation of income in coming months.

Our tax adviser London excellence accounting advises that director of the limited company must understand that dividend does not affect corporation tax as it is distributable profit after tax that is taken from the shareholders of the business. Dividends only affect the personal tax computation and it must be included in the taxable income of shareholder in preparing the tax return for the tax year which runs from : 6^th April till 5^th April.

One last thing that I would like to include in Dividend discussion is if you want to take dividends a document that must be signed and produced by the accountant for contractor is the Dividend voucher.

Dividend voucher is the official document that shows the percentage of shareholders, date of dividend taken, the company name, shareholder details and must be signed by shareholder.

If you need more advice please contact us for more information a 02034894704 or accounts@excellenceaccounting.com

IR35

IR35 is the difference between the employee and the self employed.It is applied to all the contractors who are not self employed as per HMRC.And what HMRC refers to as the disguised employee.

I can explain this by using an example of an employee who is working in the same company where he was working as a permanent employee but now they are working as contractor under limited company in order to save tax.

IR35, and does if applies to you?

HMRC believes that as the director of the company you should be wholly responsible for the work you do under the limited company if you try to work under the same responsibilities as the permanent employee than you might caught up under the IR35 and might have to pay the full NIC and PAYE rather than taking the salary and dividend through the limited company.

Is there any benefit if you are inside the IR35?

Director at Excellence Accounting says that “If you think that you fall inside the IR35 than you have to be really sure that you still want to run the company, the questions you need to be sure of are in order to keep the limited company are: is there any other contractual work you might receive that you can put through the limited company than YES or under the current contract on which you will be paying the full tax but still you will be able to claim the following expenses like: 5% of the turnover, benefits from the flat rate scheme which is going to be (up to 2,000) and can put the funds in the business savings account and receive interest thus it is still worth keeping the company running.

The correct way to find out whether you fall under the IR35 is to take the expert advice. At Excellence Accounting Limited we strongly advice our clients to get the expert advice, we work with several partners who help in advising our clients in regards to their contracts.

For more expert advice please contact Accounting for contractors; Find accountant in London team of Excellence Accounting Limited. Our contact details are : accounts@excellenceaccounting.com or by phone 02032894704