Obliged to make enough profit to pay tax on penalty?

[Zap]

Hi,

I am just getting ready to fill in the abbreviated accounts and company tax return for our husband-and-wife small limited company.

In the last few years it has been almost dormant, earning a few hundred pounds a year. It was our practice to set a "salary" such that the profit was zero. To tell the truth we were rather vague as to whether this salary was being paid to the director, my husband, or to the secretary, me. In any case it was much below the national insurance threshold.

Unfortunately we got caught out by a change in due deadline for accounts and had to pay a late filing penalty of £150.

I know that fines and penalties are not allowed to be counted as expenses and deducted from profit.Am I right in thinking that I must set the salary such that there is profit of at least £150?

Grateful for any advice that anyone has to offer.

[Chaddesley]

If you want your taxable profit to be zero I think you need to set the salary so that you have a loss of £150. This way your tax computation will read:

Loss before tax: (150)
Add back dissallowable penalty: 150

Taxable Profit: ZERO

There's no obligation to make enough profit to pay the penalty, although clearly there will need to be enough cash in the bank to pay it after you've paid yourself your salary.

Hope this helps.

[Zap]

Thank you, Chaddersley. I shall do exactly that. It's obvious now you explain it, but I couldn't get my head round it before!