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Thread: Weekly Dividend

  1. #21

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    The counter argument being that if you get investigated and HMRC see a regular outgoing payment of the same amount regardless of income or liabilities, they will decide it's actually salary and treat it as such.

    It may be legal but is it advisable? The whole trick to avoiding investigations is not to do things that draw attention to your company.

    Incidentally I always thought the best place for a war chest is in the company. You are legally obliged to trade solvently and you really don't want to stop paying a salary just becasue you're on the bench for a few weeks.
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    Quote Originally Posted by malvolio View Post
    Incidentally I always thought the best place for a war chest is in the company. You are legally obliged to trade solvently and you really don't want to stop paying a salary just becasue you're on the bench for a few weeks.
    I think you are right to keep money in the company but only if you can't get the money out of the company accounts efficiently. After all I would rather the money was in my personal account offsetting the mortgage rather than in the business account.

    Once I start hitting the 40% tax mark its better to stop that concern and keep the money in the business account until April 6th.
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    My accountant reckons it makes no difference as long as its done properly. I do a div almost every month. Accountant send me P&L every month and I work from there.

    Thinking being its better in my account earning interest than in the companies account earning zero. But then I make sure total income stays below 42K also (although my dear wife has 50% shares also) if I can.

    I don't its a pointer to IR35 at all. For instance, I could start a limited company selling bags of potatoes at the side of the road and could pay a dividend to shareholders whenever I wanted. Means nothing at all.

    But as malvolio says, there is an argument to keep some in the company to continue to pay salary if on the bench. (but then again you can't claim JSA then but thats a different argument entirely).
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    Against what does the dividend slip have to match (in terms of date/value)?

    Say for example I paid out two sums on the 1st of January, 300 and 500, both of which were dividends to myself (bear with me) do I need to declare them individually (as that is how they appear on my bank statement) or could I declare a dividend of 800 with no issues?

    The reason is, my accountant split any personal payments into 3; expenses, salary and dividends, now obviously the first two are exact amounts (i.e. my directors salary is always X and I spend Y a month on fuel) and the dividend is the remainder of the payment.

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    Quote Originally Posted by malvolio View Post
    The counter argument being that if you get investigated and HMRC see a regular outgoing payment of the same amount regardless of income or liabilities, they will decide it's actually salary and treat it as such.

    It may be legal but is it advisable? The whole trick to avoiding investigations is not to do things that draw attention to your company.
    Depends on how you run your company.

    HMRC: Hmm, I don't like this. Regular weekly payments have been made from the company to the director. These drawings should have been accounted for as salary from what I can see.

    Director: Every dividend was declared out of distributable profits. Here are the company accounts showing the current state of the company at the time, dividend vouchers and minutes of the board meetings. I think you will find they are all in order. Nothing to see here, move on.

    HMRC: OK, there's nothing to see here. Let's move on.


    However, if you run it a bit fast and loose then it could go a bit pear shaped.

    HMRC: What's this payment then?

    Director: Ahh, yes that payment was, uh, a dividend.

    HMRC: Do you seriously want me to believe that you had a board meeting outside a kebab shop at midnight on Saturday and declared a 200 dividend which you subsequently withdrew from an ATM around the corner?



    Quote Originally Posted by malvolio View Post
    Incidentally I always thought the best place for a war chest is in the company. You are legally obliged to trade solvently and you really don't want to stop paying a salary just becasue you're on the bench for a few weeks.
    If you can draw a dividend without hitting higher rate tax then I would say go right ahead - I don't see why a company should hold any profits which could be distributed out to the shareholders. As for solvency of the company at some later date, you can easily loan money to prop the company if it's ever deemed appropriate or even necessary. Mostly companies have 20% of their profit as retained funds for Corp tax anyway so there is plenty of cash at hand. Trading while insolvent? I don't think it's a problem incurring expenses (like paying salary) while you have no income, provided you reasonably expect that you can get another contract and trade your way out of the debt.

    If you can't draw that money without paying higher rate tax then yes, leave it in the company and take it out in a later year or via capital distribution when you close the company.

    If a company is cash rich and it gets sued then the shareholders are potentially in for bigger losses though...
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    I don't know what you guys do that allows you to build a warchest up from personal divi money that I can't. I spend most of what I pay myself with some savings, which are savings not warchest.

    The warchest is most definitely the profit that I have left in the company after I have taken max divs which builds itself naturally...

    I can't be building a 16-18k warchest when I only pay/divi myself around 40K a year :|

    Are people kidding themselves that their savings are their warchest? To me they are totally separate. One is for big purchases for me and my family in the future, the other is to cover my income if I am on the bench.

    There is always the situation that NWP2C is in where he has spent all but 2 months of his 'warchest' on his new house. That would indicate confusion over savings and warchest and also a problem that it can be spent far too easily on things it isn't supposed to be for.
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    Quote Originally Posted by northernladuk View Post
    I don't know what you guys do that allows you to build a warchest up from personal divi money that I can't. I spend most of what I pay myself with some savings, which are savings not warchest.

    The warchest is most definitely the profit that I have left in the company after I have taken max divs which builds itself naturally...

    I can't be building a 16-18k warchest when I only pay/divi myself around 40K a year :|

    Are people kidding themselves that their savings are their warchest? To me they are totally separate. One is for big purchases for me and my family in the future, the other is to cover my income if I am on the bench.

    There is always the situation that NWP2C is in where he has spent all but 2 months of his 'warchest' on his new house. That would indicate confusion over savings and warchest and also a problem that it can be spent far too easily on things it isn't supposed to be for.
    Maybe I see things a little more simply than you do then - my "warchest" is to cover an equivalent monthly salary should I be between contracts, where it sits is irrelevant to me. I set a goal of X number of months of good living and have piled all that into ISA's and the best savings accounts I can find whilst giving myself the flexibility to draw from them without having to give long notice periods.

    My savings are elsewhere (in regular savings accounts and wherever else I can earn a couple of percentage points above the HSBC rate) - there is no connection between the two in my mind, maybe I'm a bit more disciplined than you give some people credit for?

    I want my money to work for me - sat in the business account it does no such thing, so I spend the time (and actually enjoy) looking for the best (risk-free) way to make a bit of money on my hard-earned.

    EDIT: And this isn't meant to be as scathing as it sounds, but just because someone does something in a different way to you doesn't make it wrong.

  8. #28

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    Quote Originally Posted by Wanderer View Post
    Depends on how you run your company.

    HMRC: Hmm, I don't like this. Regular weekly payments have been made from the company to the director. These drawings should have been accounted for as salary from what I can see.

    Director: Every dividend was declared out of distributable profits. Here are the company accounts showing the current state of the company at the time, dividend vouchers and minutes of the board meetings. I think you will find they are all in order. Nothing to see here, move on.

    HMRC: OK, there's nothing to see here. Let's move on.


    However, if you run it a bit fast and loose then it could go a bit pear shaped.

    HMRC: What's this payment then?

    Director: Ahh, yes that payment was, uh, a dividend.

    HMRC: Do you seriously want me to believe that you had a board meeting outside a kebab shop at midnight on Saturday and declared a 200 dividend which you subsequently withdrew from an ATM around the corner?





    If you can draw a dividend without hitting higher rate tax then I would say go right ahead - I don't see why a company should hold any profits which could be distributed out to the shareholders. As for solvency of the company at some later date, you can easily loan money to prop the company if it's ever deemed appropriate or even necessary. Mostly companies have 20% of their profit as retained funds for Corp tax anyway so there is plenty of cash at hand. Trading while insolvent? I don't think it's a problem incurring expenses (like paying salary) while you have no income, provided you reasonably expect that you can get another contract and trade your way out of the debt.

    If you can't draw that money without paying higher rate tax then yes, leave it in the company and take it out in a later year or via capital distribution when you close the company.

    If a company is cash rich and it gets sued then the shareholders are potentially in for bigger losses though...
    WHS.

    Do it properly. Salary, expenses, and dividend payments all separate and with proper documentation.

    Otherwise you are asking for trouble.
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    Quote Originally Posted by psychocandy View Post
    WHS.

    Do it properly. Salary, expenses, and dividend payments all separate and with proper documentation.

    Otherwise you are asking for trouble.
    This...separate thread where FreeAgent's being praised...we love it to, but I have a real issue with the "smart user payment" facility, which basically means you take X and it cleverly splits it for you between salary/expenses then the balance to dividends.

    I don't like it for a few reasons:
    1) as above, it doesn't really demonstrate that you knew what you were paying yourself and why
    2) more concerningly, the splits stay "live", so there's been a couple of times where we've prepared a personal tax return based on the dividends, client then adds in some backdated expenses they "found", FreeAgent then recalculates the smart user payments altering the dividends. Not good...and clearly makes a mockery of things even if you were a good little boy and printed off your board minutes etc.

  10. #30

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    Quote Originally Posted by ThomserveBAS View Post
    Maybe I see things a little more simply than you do then - my "warchest" is to cover an equivalent monthly salary should I be between contracts, where it sits is irrelevant to me. I set a goal of X number of months of good living and have piled all that into ISA's and the best savings accounts I can find whilst giving myself the flexibility to draw from them without having to give long notice periods.

    My savings are elsewhere (in regular savings accounts and wherever else I can earn a couple of percentage points above the HSBC rate) - there is no connection between the two in my mind, maybe I'm a bit more disciplined than you give some people credit for?

    I want my money to work for me - sat in the business account it does no such thing, so I spend the time (and actually enjoy) looking for the best (risk-free) way to make a bit of money on my hard-earned.

    EDIT: And this isn't meant to be as scathing as it sounds, but just because someone does something in a different way to you doesn't make it wrong.
    Makes perfect sense.. I just couldn't live and save as well as build a warchest by staying under the tax threshold. With my method leaving it in the company means I am not paying the extra tax on it. I don't therefore see the money in the account as 'my' money as I wouldn't withdraw it and pay the tax on it if even if I had a personal warchest.

    I don't see it is scathing, just a different approach...

    I presume you withdraw what you need and don't keep to the tax threshold? or have extra shareholders so there is little left in the business?
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