BV company yearend bookkeeping is coming as the year is ending! What do you need to do, tax wise?
BV company yearend bookkeeping
Around this time of the year, October, probably your Q3 Value Added Tax return is being done. May I suggest you ask for an extract of the balance and profit and loss for the first three quarters of the year?
The reason for this is that you then have a good inside of the accounts, as in the last quarter of the year there are some decisions for you to take. I would like to address them in this article.
BV company yearend bookkeeping – salary
Most BV company entrepreneurs we encounter are shareholder and director. For the shareholder director there are minimum salary requirements. And the one year you find it easier to meet that requirement than in other years.
Depending on the result of the company, you could grand yourself a bonus. The bonus is meant to meet at least the minimum income requirement and can be used to settle maybe your current account. Your current account is a debt you have to the BV company for taking out more money than your net salary.
BV company yearend bookkeeping – dividend
A dividend is the payment out of the profit reserve of the BV company to the shareholders. Most BV company clients we have, have only one shareholder. The decision for a dividend is then not difficult to make. The main criteria for a dividend is that the company needs to have a positive profit reserve. Please check the balance you received.
The other criteria is that the dividend payment made now, cannot jeopardize future financial obligations of the BV company. In other words, this payout cannot frustrate payment of other creditors.
You can also use the dividend to settle your current account. Your current account is a debt you have to the BV company for taking out more money than your net salary.
What is the difference between salary and dividend
The salary is taxed at 49,5%, at least, I hope you do well enough to be in the highest tax bracket. The salary also reduces the taxable profit of the corporate income tax, hence could save you 19% corporate income tax over EUR 100.000.
The dividend is taxed in Box 2 at 24,5% over the first EUR 67.000 and 33% over the balance. At first glancee that looks cheaper? However, you need to realize that before this EUR 100.000 can be paid out as dividend, the company paid corporate income tax over the profit.
Another aspect is that a higher salary creates the possibility to obtain a higher loan amount. For instance to purchase a home. Dividend does not create such a possibility.
Current account with the company – loan agreement
Above you read that I touched the current account aspect. The current account is the money you took out above the net salary. Actually, you borrowed money from the BV. Because you and the BV need to be seen as third parties, you need to formalize this loan. I often suggest to my clients “can you loan me the same amount under the same conditions?” Often I hear a NO.
No in this case implies this was not an agreement you would make with a third party, so you being the shareholder was part of this decision. That is not good. So please create a loan agreement with interest, repayment schedule and possibly collateral to formalize this loan.
Current account with the company – informal capital
In the event your company is not doing very well, and you put in capital from your private bank account into the BV company bank account, do you have a current account?
You would assume you have, so you are ready to create a loan agreement with interest. But the question is, would any sound thinking investor loan an amount to a company that is not doing well?
Probably not. In other words, you being the shareholder made you make this payment. Hence the amounts paid into the company is not referred to as a loan, but informal capital payment.
The difference is that if the BV goes bankrupt, you cannot claim privately a loss when the loan is not repaid to you. This is not a loan, but capital.
Another aspect of this loan which is actually capital, is that the interest the BV pays to the shareholders is a taxable income in Box 1.
You see, either way, a current account has aspects you did not become entrepreneur for. Hence we recommend to erase the current account before the year ends with either a dividend payout or salary bonus.
Preliminary corporate income tax assessment
At the start of the year the Dutch tax office issued to you either on their own or on your request a preliminary corporate income tax assessment. That assessment is based on an expected result of the BV company.
If you now look at the profit and loss overview of the first three quarters and you add to that what you think will be the result of Q4, is that preliminary assessment still in line? If too low, and you have the liquidity to pay for the additional corporate income tax, we recommend to update the preliminary corporate income tax assessment.
The reason for this is your liquidity management. If you pay the tax in the year you made the money, this has less effect on next year. Obviously you assume the next year will be as good as this year, but what if that is not the case. And then the corporate tax assessment of the previous year can be a burden.
Tax is exciting
We think tax is exciting. Being on top of your game is not only exciting, but gives you also peace of mind. We would like you to be on top of your game, hence we ask you to spend a little time on the current year bookkeeping. Become aware what is the situation and act.
