Dividends & Director's loan accounts

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion

My client is the sole director of a small Ltd Company - the only other shareholder is his wife who owns 50% of the shares. I'm trying to calculate whether the company should declare any more dividends in 2006/07 - there's plenty profits avaliable for distribution but cash is a bit tight at the moment. If the company was to declare dividends of, say, £5000 to each shareholder would I be alright to post £10000 to Mr X's director's loan account (that's looking a bit sad at the moment!)? Or would the wife's £5000 have to be paid in cash to her?

Any comments/advice appreciated!

Jodie

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Dividends & Director's loan accounts

    Hi Jodie,

    You can vote a dividend for £10,000 which would be credited to his loan account but the dividend vouchers would effectively be made out to show £5,000 to the husband and £5k to the wife and then these amounts would be entered on their respective tax returns in the usual way.

    The companies act legislation effectively means that the husband still has 100% beneficial interest in the shares because the act classes shares issued to spouses and minor children as the husbands even though his wife is not a director - so in the directors report he will be shown as having 100 shares. The only time it gets a little complicated is when equal shareholders receive dividends in different proportions (i.e. 50% 50% shareholding voting dividend of £5,000 to A and £3,000 to B).

    Hope that helps.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Dividends & Director's loan accounts

    Thanks so much! That is exactly what I wanted to hear. Would it be sad to say that that made my day? :lol:

    ...and no, it's not complicated like that - they're all just ordinary shares.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Dividends & Director's loan accounts

    Hi Jodie,

    No I meant when the ordinary shareholders hold 50% each and (in your clients case) Mr has 50% and Mrs has 50% (let's say both are directors) but a dividend is voted £3,000 to Mr and £2,000 to Mrs - this is where it's complicated as you would expect equal shareholders to normally have equal dividends. I'll not go into the trivialities about it all but if it happens just post here.

    Regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Dividends & Director's loan accounts

    Oh I see what you mean, although I can't see how you could 'legally' do that!
    I've got another client where there are 2 director/shareholders who have always shared everything 50/50 but one of them is now only working 3 days a week and therefore taking a smaller share of profits. I only do the books for them & I advised them to speak to their accountant about how this new arrangement was going to work - he seems to have made it very complicated with 'B' shares and preference shares and getting their wives involved - maybe when I find some of that ellusive spare time I'll work out what he's done, but for now i'm just taking his word for it.

    Thanks again!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Dividends & Director's loan accounts

    Ok I'll just quickly explain. I went to a client's last week. Two directors have 50% each.

    One loan account, pre-dividend, was £2,000 overdrawn (Mr A) the other £3,000 (Mr B). What we had to do was to vote an interim dividend to Mr B in october (year end was January 07 but the dividend voucher will have an Oct date), Mr A had to sign a dividend waiver also dated Oct, waiving his right to a dividend so that from a paperwork point of view the dividends look like Mr A has decided not to have one in October, even though it was simply because Mr A loan account was less overdrawn pre-dividend at the end of the year than Mr B's. Then we do the final dividend paperwork bringing the balance of dividends in the year up to the £2k to Mr A and £3k to Mr B.

    A & B shares (known as alphabet shares) are split for dividend and voting rights whilst preference shares also carry rights to dividends before the ordinary shareholders get their divis.

    It's all to keep the paperwork "formal".

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