Interim Dividends v Director Withdrawals

[SteelyDan]

I split it up to keep things simpler (& transparent) from an accounting point of view.

Makes it easier for me to check things, and presumably for my accountant as well when they come to do my end of year accounts.

WHS plus those in bold...

[jamesbrown]

Why?

If your payroll date is say, 27th and you also declare a dividend that day with correct paperwork, what is the problem with making a single payment covering the two?

Or, alternatively, crediting both your dividend and salary to your DLA, then making a single payment from the DLA later?

In my view, it's just "common sense" to keep them separate. If HMRC want to make the case that dividends are being paid as disguised salary, it's going to make their job easier if you apparently view dividends as salary. I'm not aware of any cases of this actually happening, and I have no evidence whatsoever to suggest it would happen. However, for something that is simple to implement and also makes it simpler to look back through your bank transactions and understand and aggregate the various classes of debits, keeping the payments separate is just good practice in my mind. YMMV.

[TykeMerc]

Like many on this thread I prefer to keep them separate.

Even if I put in a couple of months expenses (on monthly expense sheets) at once with a few months salaries and maybe a dividend I pay them all as discrete payments.

e.g.

March Expenses
March Salary
April Expenses
April Salary
One off Dividend

Would have 5 discrete payments, 5 entries on the bank statement and a bit of a note against each payment, they may well all have the same payment date though.

Just easier to track for me and I'm sure a fair bit easier for the accountants.

[TheCyclingProgrammer]

So long as it all tallies up it shouldn't matter, but I split it up to keep things simpler from an accounting point of view.

I also keep dividend and salary payments separate too, but like you said the actual payment should make no difference as long as PAYE and dividend paperwork is correct. I'm just curious where this idea that the two should be paid separately comes from.

My own personal schedule is:

* Salary - paid monthly
* Dividends - paid quarterly
* Expenses - ad-hoc. Expenses are recorded in detail in a spreadsheet and entered into FreeAgent in batches (e.g. July travel expenses) and I make payments whenever I get round to it (FreeAgent keeps a running total of what I'm owed).

I'm not entirely happy with my expenses system as I always get behind on scanning and recording my receipts but it just about works.

[TheCyclingProgrammer]

In my view, it's just "common sense" to keep them separate. If HMRC want to make the case that dividends are being paid as disguised salary, it's going to make their job easier if you apparently view dividends as salary.

This sounds like FUD to me. If dividend is legal then as far as I'm aware there's no precedent for HMRC being able to claim it is actually a salary. Is there one? A dividend is a dividend. If there is sufficient profit and the paperwork is correct, I don't see how making one unified payment can change that, no matter what HMRC might like to think.

However, for something that is simple to implement and also makes it simpler to look back through your bank transactions and understand and aggregate the various classes of debits, keeping the payments separate is just good practice in my mind. YMMV.

I buy the argument that keeping payments separate might make it easier to reconcile bank statements with your books, but on the other hand in an age of computerised book-keeping and software like FreeAgent and Xero I'm not sure it actually makes that much difference. For instance, I could import a bank statement into FreeAgent and easily split a transaction to show it as £x salary and £y expenses. If HMRC were to audit my accounts, they'd be looking at my books and see clearly what each payment was.

Equally, I could just credit the salary and dividends directly to my DLA if I wanted to. This would be enough for the dividend to be deemed as paid. I could then make whatever payments I wanted to from my DLA - payments that might not match up with the original salary or dividend payments whatsoever. So long as these payments are clearly shown in your books as payments from the DLA it should all tally up just fine.

[TheFaQQer]

I always keep them separate.

I have three payments set up from the bank account - salary, expenses, dividend for each employee and shareholder. Salary is on a standing order, expenses are done ad-hoc once I've processed a month, and dividend is used whenever I take a dividend. If that results in three separate payments on the same day, then so be it - I like to see exactly what is what.

(Actually, I have a fourth payment type of directors loan just in case)

For me, it doesn't really make much difference - I take a dividend round about April 10th, and another one round about March 31st to take any remaining up to the next threshold. Then the money sits in my 123 account earning me 3% interest for the year, or it gets invested somewhere else. Monthly dividends just seems like a pain in the bum to me.

[Forbes Young]

So long as it all tallies up it shouldn't matter, but I split it up to keep things simpler from an accounting point of view.

Makes it easier for me to check things, and presumably for my accountant as well.

It does matter to HMRC - they hate to see dividends and salary mixed up - its like a red rag to a bull. Bear in mind that dividends are returns on investment (ie on the shares you hold in the company); they are not glorified salary/employment income.

[TheCyclingProgrammer]

It does matter to HMRC - they hate to see dividends and salary mixed up - its like a red rag to a bull. Bear in mind that dividends are returns on investment (ie on the shares you hold in the company); they are not glorified salary/employment income.

But how can legal dividends with the right paperwork be in anyway construed as salary, just because its paid at the same time as the salary (which has its own separate documentation)? Just because "HMRC says so"? They say a lot of things...

Still seems like scaremongering to me. Have HMRC ever successfully argued that a dividend payment was actually a salary, where both payroll and appropriate dividend paperwork were in place?

[TheFaQQer]

Still seems like scaremongering to me. Have HMRC ever successfully argued that a dividend payment was actually a salary, where both payroll and appropriate dividend paperwork were in place?

<pedant>The paperwork needs to be appropriate and the dividend needs to be legal . Buck v HMRC and Donovan & McLaren v HMRC both had the appropriate paperwork but the dividend wasn't</pedant>

[TheCyclingProgrammer]

<pedant>The paperwork needs to be appropriate and the dividend needs to be legal . Buck v HMRC and Donovan & McLaren v HMRC both had the appropriate paperwork but the dividend wasn't</pedant>

Well quite, that is what I meant. A legal dividend with sufficient profits and the correct paperwork. Salary paid, RTI submission filed and payslip produced. So everything as it should be.

I'm not sure how those settlements legislation cases are particularly relevant; they are certainly an exceptional cases concerning the use of dividend waivers but in neither were the dividends actually found to considered as *salary* payments, rather that the waivers were treated as a settlement.

Has there ever been a case of a straightforward, single shareholder company with sufficient profits and all other paperwork and requirements for a legal dividend in place to have been found that their dividend payments were actually salary payments?