Close Company Surcharge - Clarification on Distributable Trading Income

[ebs_customer]

Hi,

I want to ensure compliance with this tax and need some clarity on the definition of distributable trading income.
Specifically, is it before or after director salaries.
As a simplified example:
If a company has a turnover of 100k
General expenses of 15k
Staff salaries of 20k
Director salaries of 40k

Is the DTI in this case 21875 (25k - CT) or 56875 (65k - CT)?
I had assumed that in this case that it would be 21875k and no surcharge is due since 50% of the DTI (10937.50) is less than the distributions (40k)

Also, are capital gains made by the company relevant to the estate / investment income portion?

Thanks for any help

 

[dublin67]

It would be the €25K less the CT. You don't mention distributions in your example but you do deduct the distributions from the DTI.

In relation to your queries re capital gains and investment income - the answer is no to CGT. For investment income there is a separate and very similar computation for investment and this is contained in section 441 TCA. Take a look at the Revenue website and you'll get good worked examples.

Two general points - are you sure that you are engaged in what is is considered a professional service? Again take a look at the surcharge manual on the Revenue website. Secondly any DTI is restricted by the amount of distributable profits available. In your example if your DTI is €21,875 and you have a negative P&L balance and you can't make a distribution under company law your DTI is zero and no surcharge applies.

 

[ebs_customer]

It would be the €25K less the CT. You don't mention distributions in your example but you do deduct the distributions from the DTI.

Thanks, I didn't include distributions as I don't see any point in paying dividends. My concern was that director salaries were not included as distributions, which someone on here stated in another thread. This seemed very odd to me all right.

In relation to your queries re capital gains and investment income - the answer is no to CGT. For investment income there is a separate and very similar computation for investment and this is contained in section 441 TCA. Take a look at the Revenue website and you'll get good worked examples.

Great, I'm happy with the investment side of it and would aim to restrict investment income to below the threshold of €2250 to avoid any issues there (would leave DEI of €2000 after CT).

Two general points - are you sure that you are engaged in what is is considered a professional service? Again take a look at the surcharge manual on the Revenue website.

At present it probably would, but for other years it wouldn't. I've seen some very dubious interpretations by revenue in the past to so want to err on the safe side and comply as if they would treat it as professional services.

Secondly any DTI is restricted by the amount of distributable profits available. In your example if your DTI is €21,875 and you have a negative P&L balance and you can't make a distribution under company law your DTI is zero and no surcharge applies.

Thanks, this is the bit I don't really understand.
In the example above the company would have retained profits of the 21,875 at the end of the year in addition to other assets and cash, increasing every year as profits are accumulated.

I must admit I don't really see the aim of the surcharge, surely it is prudent for companies to retain some profits to guarantee cash flow for staff wages etc and allow investment in necessary equipment etc as required.