Wages V Dividends

yves

Can anyone give advice

A company in the first year of trading director has been taking a wage

now wishes to take a lower wage and a dividend to avoid paye payments

but the dividend would be on a regular basis to top up wages

my understanding was a dividend was taken from the profit of the previous

years trading

The director knows a guy whose accountant advises him to take a minium wage and a regular dividend to top the wages up

I would appreciate any views

thanks in advance

yves

burg

Hi there

I had a similar case recently at work where I enquired to the partner I work for as to it's legality.

Basically dividends are for the current years profits (which is where interim dividends come from).

As long as you can prove that at the year end the dividends issued were not above the total allowed then it is fine and the dividends were legal
(i.e dividends less that the profit after tax)

So you can issue say a dividend of £1000 (£900 net) every month as long as the profits after tax at the year end are above £12000.

If however the dividend is more than the profits then you will have a problem and it will most likely mean an oversdrawn directors loan account I assume but I didn't go into this side that much.

So this is alot easier if they were a sole trader or partnership and have incorporated as you will have an idea of likely profits. Otherwise its a question of lots of good forecasts.

Hope that is all clear

yves

Thanks Burg

that does help

what was worrying me was if the dividends turned out to be more than the profit

yves

burg

Yeah I know.

I'm pretty sure that it the excess goes against the directors loan account and if this takes them over drawn then it needs to be declared and repaid within nine months or tax is charged. Plus if it's over £5k then it becomes a 'BIK' as a preferential loan.

Could all get very messy.

As I said I'm not 100% on that though. I will check next weds with the partner. He's sick at the moment and I'm on courses from Fri til Tues.

So I'll post back when and if I have more info.

Ian

Sevren

Hi - you may want to have a look at my post a week or so ago :

http://www.aat.org.uk/forums/showthread.php?t=16956

(no idea if this link will work !)

I was having a similar problem in clarifying this issue and from Steve's response I took it that you need to factor in any losses being brought forward.

Sevren

yves

thankyou Sevren

that is most helpful

yves

yves

Thanks Berg

yes thats makes sense to me now youve pointed it out

yves