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    Default Illegal dividends or not !

    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)

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    Short answer: no

    Long answer: you need to knock up some accounts and check your reserves/p&l account, knock off 20% as a CT estimate. That's what's available to you as divis
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    Quote Originally Posted by retyfraser View Post
    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)
    Why not ask your accountant about how director loans work if it's short term?
    The greatest trick the devil ever pulled was convincing the world that he didn't exist

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    Quote Originally Posted by LondonManc View Post
    Why not ask your accountant about how director loans work if it's short term?
    to being with director`s loan is complicated and apparently you are not allowed to fund a house deposit with a company director`s loan it seems.
    In the long run I will not be allowing my company to fall short of funds, so just wanted to know if in the short run ( not more than 2 months for my company account to replenish itself !) if that is feasible or not.

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    Quote Originally Posted by ladymuck View Post
    Short answer: no

    Long answer: you need to knock up some accounts and check your reserves/p&l account, knock off 20% as a CT estimate. That's what's available to you as divis
    This.

    And....IMO you shouldn't be running the company funds down so low in any case.

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    Quote Originally Posted by MrMarkyMark View Post
    This.

    And....IMO you shouldn't be running the company funds down so low in any case.
    Yeah, I know. I never would under normal circumstances. Its just this case I have to and its a month I have to put up with low balance !

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    Quote Originally Posted by retyfraser View Post
    Yeah, I know. I never would under normal circumstances. Its just this case I have to and its a month I have to put up with low balance !
    If your contract ends tomorrow - and it can - how are you going to fulfil the company's legal liabilities?
    "You’re just a bad memory who doesn’t know when to go away" JR

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    Quote Originally Posted by retyfraser View Post
    Yeah, I know. I never would under normal circumstances. Its just this case I have to and its a month I have to put up with low balance !
    Well, as you have described them, they would be illegal dividends in any case.
    They fit the exact description.

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    If you have an invoice outstanding you expect to be paid this will be an asset and therefore the dividend could potentially be legal. But take care and as said above you need to draw up a balance sheet first.

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    Quote Originally Posted by Alan @ BroomeAffinity View Post
    If you have an invoice outstanding you expect to be paid this will be an asset and therefore the dividend could potentially be legal. But take care and as said above you need to draw up a balance sheet first.
    That's interesting to note Alan and something I didn't actually know.

    Thanks!

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