I`ve a question on these Dividends and need to know more if what i am about to say will be illegal dividends or not.
I am an IT contractor and my company gets paid every month. Say my company bank account has £20,000 as its balance as of today. Is it correct for me to declare £19,000 as dividends today and transfer it today, in the hope that the Dec month payment to my company will refill the balance !
My situation is just for a month or 2 but in the long run is not expected to be disturbed, so can someone please help me with this ?
What I read is that illegal dividends "When Corporation Tax is then calculated at the year end the available profits reduce, and the dividend that was paid suddenly creates a loss. This is known as an illegal dividend, or Ultra Vires, as dividends should only be paid from profits."
Source : (Illegal dividends - what they are, and how to avoid them)