I queried my company accounts this year as the dividends figure looked too low. I had also purchased a workshop building and had some expenses associated with this, a valuation, mortgage brokers fee, mortgage lenders fee and so on. The accountant has told me this is why the dividend figure was reduced, by exactly the amount of these expenses associated with the capital purchase.
All sounds good to me, as I pay less tax as a result, but I'm still scratching my head as to how that makes sense. Can anyone explain it to me? Thanks.
sounds like by adding these expenses to the P&L and the purchase of your workshop it may of used up some of your reserves and also reduced your profit after taxation. so the affect would be you pay less tax however, because your expenses are higher there is not enough money left to pay the usual dividend. He may also be using some of your profit to top up your reserves.
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Accounts,Book-keeping,Tax,Business Finance,Invoice Discounting and Factoring we also specialise in public house Accounting and Finance So if you need our help please give us a call.
Sorry, I should have provided some more information about the accounts. These expenses are not in the P&L and the dividends calculated by the accountant were also out by the same amount from what I expected. Not being in the P&L made sense to me, once I googled it, since these are expenses associated with a capital purchase and therefore different to the other expenses occurred in the usual business activities of the company.
The explanation provided by the accountant was:
"The main difference is the costs associated with the purchase of the property. Such capital costs are not allowed in the calculation of taxable profits and as such have been set against your directors loan account. This offset has the effect of reducing your dividends, hence the difference between your dividend figure and mine."
That sounds to me like the expense was treated as though it were something I had paid for myself, rather than the company? Is the explanation then, that since I own the company 100%, and these expenses reduced the companies capital, I did effectively pay them personally?
Thanks again, for any further enlightenment anyone is able to provide.
In a nutshell you have paid for the property out of your usual dividend payment. the treatment for your workshop should be
DR Freehold buildings
CR Bank A/C
All the finance charges go through the P&L and are tax deductable I cannot understand why he has not put them through the P&L. he may have a very good reason but I am struggling to think of one.
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Accounts,Book-keeping,Tax,Business Finance,Invoice Discounting and Factoring we also specialise in public house Accounting and Finance So if you need our help please give us a call.
Has he viewed the property being purchased as commercial property or does he think you have purchased another house? Has he increased your fixed assets by the value fo the property or is he excluding it for some reason? You say 'workshop' - but can you advise what type of workshop it is - structurally?
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
The mortgage is this in the companies name if not this will explain the strange treatment of the asset
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Accounts,Book-keeping,Tax,Business Finance,Invoice Discounting and Factoring we also specialise in public house Accounting and Finance So if you need our help please give us a call.
"Other examples of non-allowable legal and professional expenses include:
* legal costs incurred in acquiring, or adding to, a property,"
Which makes sense to me too.
The question is, why deduct them from the dividends and offset against directors loan?
Rupert
(I'm changing accountants for next year - my main problem is the dreadful customer service, Tax Assist, its taken about three weeks to get an answer out of them.)
