Overdrawn DLA and illegal dividends

imeldabye

Hi all, I have a ltd company year end 28 June 2012. He had a net profit (after tax) of around £13.5k but paid himself around £15k during the year in Dividends. This was due to shocking lack of paperwork and failing to listen to me telling him that you can only pay dividends on retained earnings rather than what cash he has at the bank at any given time
He has only provided me with sales figures relating to invoices/jobs that he has been paid for. So if he is able to provide me with some turnover figures (ie invoices raised before year end but not paid) to create a debtors ledger, can I then turn the negative figure on the BS into a positive this way? It is still profit isn't it- so legal dividend rather than illegal?
Or should I show this £1500 as overdrawn loan a/c? To reverse in the next year's accounts. I understand the whole 9 mth CT charge thing, but my question is- a) how will the revenue know when it is reversed if the accounts are done at year end (i.e. 12 months after)- even if I made the entry in the books in 3 months' time this won't be noted on the balance sheet- or is it just in case they come knocking? and b) what is the double entry? is it DR Bank and CR DLA Sorry if I am being very dense.
thank you

imeldabye

ha ha no-one has replied but just in case anyone intends to, I have spoken to the client again and there is not more turnover we can add - so it will have to be an overdrawn DLA. If this is re-paid before 9 months then do we have to declare loans to participators on CT600- I think I read somewhere that any overdrawn DLA needs to be explained on the CT600 but can anyone confirm this?
thanks

Bluewednesday

If you clear it within 9 months of the year end, then you fill out the loan to participators section of the ct600 and put the date that the loan account was cleared, so that's how HMRC will know.

does that help?

imeldabye

That really does help thank you :001_smile: And it will be cleared when I DR Dividends CR DLA? that is of course when there is sufficient profit to award a dividend...
thanks again

Monsoon

If there had been debtors then, yes, not only would that have increased the profit, but it is correct and important to include them. Limited Companies have to use accruals accounting.

And yes, clear it with future profits but take into account any subsequent drawings he may have taken.

RAS

This type of client can be very tricky, constantly drawing too much out of the business. Make sure that he is also aware that he needs to retain roughly 20% of profits to be able to pay the corporation tax.

imeldabye

Yes you're right- and typical of a sole director who hasn't understood the separation thing at all.