Declaring dividends and not paying them

Poodle

Hi,

Some while ago I had a discussion with a CA regarding dividends being declared and paid to directors loan accounts rather than actually being paid out in cash.

This being to enable full benefit of the individuals BR tax band when there are profits to be distributed but no cash available in the company to do so. He told me that this is fine and all you needed to do is make a note in the minutes to this effect.

I have not actually done this, has anyone out there ever done this? If so how did you narrate the minute note and has it ever been challenged?

The reason why I am asking is for this dratted business of income splitting comming to an end soon and I have a couple of clients in this situation.

Poodle

whiterose

The dividend is deemed to have been paid when it is made available, ie when it is paid to the DLA, even if it has not been taken out of the account. So you can't 'shift' the income into a different year by paying divs to a dla.

Poodle

Hi whiterose,

Thank you for your answer but you have confuse me a bit (not too difficult I know).

Perhaps I was not clear. I am not trying to shift income into another year just trying to distribute the profits for the current and prior years, by journal to the DLA rather than having the cash (because there are distributable profits accumulated but not cash) leave the company.

If the company waits until after April 5th to declare the dividend, when cash may be available to pay them out of the company, then the second director (shareholder/wife) will lose her BR band as the income will have to be declared as the first directors (her husband) income, i.e the ne income shifting legislation.

Poodle

Dean

Poodle

You can do as you are suggesting. Vote the dividend, prepare the usual dividend minute and make the journal. The fact that there may not be physical cash to pay the dividend is neither here nor there. The director agrees to have the dividend credited to his DLA and drawn apon at a later date.

Basically, do everything as normal. If you want to put that extra piece of documentation in place then I suppose you can have a letter drawn up with the director agreeing to be a creditor of the company. However, I doubt you really need to do this.

Regards

Dean

Poodle

Hi Dean,

Many thanks

Poodle

whiterose

Sorry yes I misunderstood you (memo to self: always read the question twice!!)

msf

Dividends when should they be shown on SA return

Hi,

Just refering to Deans comment about crediting the dividend to DLA and drawing at later date.

I have a limited co that shows DLA in credit by £13k (which is made up of dividends).
I am right to think that when the physical cash is paid to the director only then will it be declared/entered in their SA return?
ie £7k drawn by 31/03/08 - would be included in SA 2007/08 and
£6k drawn later in say 30/4/08 - in the SA 2008/09?

any advice appreciated.

deanshepherd

When he draws down the money is irrelevant.

The dividends will be included in the tax year in which they were declared.

msf

sorry to sound dumb...
so that means say financial year 31/12/2007, Accounts will be prepared by 31 May 2008 at this point we know how much dividend to propose in the financials say £10k.
So at 31 May 2008 will be the declared date and therefore the £10k will be included in the Directors SA return 2008/09...Is this correct? :confused1:

deanshepherd

Yes.

If the director has to wait until the accounts are prepared before knowing whether he can pay a dividend or not then he might want to take a look at his bookkeeping system!

msf

thanks dean.....
yes...a good system should do that :thumbup1: