dividend question

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  • hanalav123
    hanalav123 Registered Posts: 13 Regular contributor ⭐ ? ⭐
    All money taken from the directors should surely be treated as drawings, and then when the accounts are drawn up and the director has drawn more than profit, he will have an overdrawn loan account. Which will mean he will have to declare it on the corp tax return and pay 25% tax until the loan is paid in back in full which he will then get the tax back. Dividends are only declared at the end and will often be declared to clear directors overdrawn loan accounts as long as there is avaliable profit.I may be wrong but I have worked in practice for 4 years and see this all the time.
  • BobJolly
    BobJolly Registered Posts: 10 Regular contributor ⭐ ? ⭐
    I do hope you never gave him or her the idea that you took dividends willy-nilly. Sometimes they will listen to only one part of what you were telling them. Then you get the shocks. As one of the other replies rightly said you have to go about things in the right way. I am just brainstorming, but these are my first thoughts......

    I am just wondering if you could put things right by transfering the whole amount a director's loan account. Then rather belatedly go through the process of treating part as a dividend payable at the year-end. You cannot now treat any individual element as a dividend because when they were drawn you wouldn't know if there was any reserves to do so. However, I am sure that the Revenue will not condemn you to vote out any equivalent amount so as not to leave a deficit on reserves. Now if you look at what the director may have introduced into the business by way of an absolute transfer of title of ownership such as stock, plant, vans, etc...(all professionally valued) you will be able to reduce the deficit (and claim IA's in the tax comp.). So with luck on your side you may only be leaving a small deficit on the personal loan account. Now you look this one up and see what the Revenue will allow without them raising a tax bill on the deficit overdrawn director's account. By the way, did the director pay for the share issue? Tricky, but it really isn't all doom and bust. Trouble is many get these ideas from others and never discuss things with the appointed accountant. Make sure you get all the paperwork such as Minutes and divi warrants within the year-end. And then make sure you include the dividends on the personal tax returns within the normal tax year. This might lead to a further individual tax bill if the divi's took things too high. Go to the AAT Tax Helpline. I have found Waterlow:huh:s in London very helpful with the paperwork. At worst, you will have to put things though as a bonus under PAYE according the year in question. Wonder what others think?
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    hanalav123 wrote: »
    All money taken from the directors should surely be treated as drawings

    Unless it was the directors intention that they be a dividend.
    Dividends are only declared at the end..

    What makes you think that? I declare one at least every month.
    ..and will often be declared to clear directors overdrawn loan accounts as long as there is available profit.

    Hmm, sounds like back-dating to me!
    I may be wrong but I have worked in practice for 4 years and see this all the time.

    That may say a little more about the firm you work for..

    ;)
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Unless it was the directors intention that they be a dividend.



    What makes you think that? I declare one at least every month.



    Hmm, sounds like back-dating to me!



    That may say a little more about the firm you work for..

    ;)

    +1 to all of that.

    Clearing an overdrawn DLA with a divvy at the year end was always bad practice, and is increasingly frowned upon now.
  • stevo5678
    stevo5678 Registered Posts: 325
    I have to say this is pretty normal. Technically yes they should be declared as you go along, but in the 'real world' accountants have to clear the DLA with a final dividend on many occasions.

    I work for a firm of Chartered Accountants (and registered auditors incidently) which has around £900,000 T/O and has been inspected by the institute twice. We have also had our fair share of HMRC investigations. hanalav123 rest assured this does say something about your practice, it says that they are doing what many established practices are doing on a practical basis (I'm not saying it's the recommended basis) .

    So to summarise, don't panic. Clear the DLA with sufficient dividends, declare on the clients tax return and all is fine. There are much much worse things going on than this in the accountancy world. Re HMRC investigating, if you clear the DLA with a dividend and the company has profits at YE, then why would there be any reason to investigate such accounts? HMRC have powers and resources but they cannot tell you what your financial position was during the year without even seeing your records.

    It is not always about getting advise from someone who has swallowed and an a-z of the accounting rules (if there was such a thing), it is about getting advise from people with 'practical' guidance in such issues as well as the appropriate qualifications. No one is saying providing a final dividend is best practice, this is the situation (which I re-iterate is very common) and this is the common way of dealing with it.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    Stevo, I know it happens.

    There are far worse things in the accountancy world than ignoring £10 of cash in hand income, but if a million people did that....

    As I understand it, HMRC are increasingly wanting to inspect the records to show that dividends are being declared properly in year and, where they aren't, that BIK on DLAs are paid as the DLA will be overdrawn until year end.

    I know it happens. Sometimes it 'has' to happen. But I think to encourage new Members and MIPs that it is ok is not a good thing.
  • stevo5678
    stevo5678 Registered Posts: 325
    Monsoon wrote: »
    Stevo, I know it happens.

    There are far worse things in the accountancy world than ignoring £10 of cash in hand income, but if a million people did that....

    As I understand it, HMRC are increasingly wanting to inspect the records to show that dividends are being declared properly in year and, where they aren't, that BIK on DLAs are paid as the DLA will be overdrawn until year end.

    I know it happens. Sometimes it 'has' to happen. But I think to encourage new Members and MIPs that it is ok is not a good thing.

    I can't disagree, this should be the way its done. We have our standards.
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    stevo5678 wrote: »
    It is not always about getting advise from someone who has swallowed and an a-z of the accounting rules (if there was such a thing), it is about getting advise from people with 'practical' guidance in such issues as well as the appropriate qualifications.

    It's actually about managing risk. Perpetually advising clients to do things the wrong way by saying 'Don't worry, everyone else does it too' will come back to bite you one day. Google 'Christopher Lunn & Co.' and see where that tactic got them.
    I work for a firm of Chartered Accountants (and registered auditors incidently) which has around £900,000 T/O and has been inspected by the institute twice.

    Try telling that to your client when he is being assessed for tax, interest and penalties for the past 6 years and see what he says. Probably the same thing I am thinking..
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    It's actually about managing risk. Perpetually advising clients to do things the wrong way by saying 'Don't worry, everyone else does it too' will come back to bite you one day. Google 'Christopher Lunn & Co.' and see where that tactic got them.

    Try telling that to your client when he is being assessed for tax, interest and penalties for the past 6 years and see what he says. Probably the same thing I am thinking..

    I'd also be interested to know if "well, everyone does it, even though it's not right" would be accepted by PI insurers as valid reasoning in the event of a claim.

    If there is a sudden massive clampdown by HMRC on this issue, I'd like to be one of the accountants standing up with clean hands... ready for all the people who might want a new accountant after they discover what theirs has been doing.
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