Interim Dividends v Director Withdrawals

[jamesbrown]

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?

I think the pertinent question is this: given the simplicity of making separate payments and the secondary benefit that it makes your bank transactions simpler to follow and aggregate, why would you not do this? I agree with Forbes Young. Why give HMRC a reason to dig deeper, even if everything is strictly legal? Also, I think it's good to mentally separate these two things in your head. A dividend payment is a reward for profitability, it is not a salary in any sense. You can call this pedantic, but I think it's important. In my view, if you start to adopt a questionable practice/mindset in some areas, it will creep into other areas too. As I said, YMMV, and it's not something I'd lose sleep over.

[TheCyclingProgrammer]

I think the pertinent question is this: given the simplicity of making separate payments and the secondary benefit that it makes your bank transactions simpler to follow and aggregate, why would you not do this?

Because so long as everything is legal and above board, I don't see why people should let HMRC effectively dictate how they micro-manage aspects of their business and if a company wants to make one single payment to settle any outstanding liabilities to an employee and/or shareholder then that is up to them.

Why give HMRC a reason to dig deeper, even if everything is strictly legal?

I'm not really convinced that a single bank payment would give HMRC reason to dig deeper into anything unless they already had plenty of other things to be concerned about. You show them your books, the reconciled bank statement, the payslip and dividend paperwork if they ask and that's it. If they are checking that payroll has been operated correctly and/or that dividends were correctly declared, I'd expect them to want to see this regardless of how many bank payments you made.

Also, I think it's good to mentally separate these two things in your head. A dividend payment is a reward for profitability, it is not a salary in any sense. You can call this pedantic, but I think it's important.

I agree, you should think of them as separate things, from a business perspective. I don't think how you choose to transfer the money owed has any bearing on this at all. Once its in your own bank account, they are both just "income".

In my view, if you start to adopt a questionable practice/mindset in some areas, it will creep into other areas too.

More FUD.

[JRCT]

I think the pertinent question is this: given the simplicity of making separate payments and the secondary benefit that it makes your bank transactions simpler to follow and aggregate, why would you not do this? I agree with Forbes Young. Why give HMRC a reason to dig deeper, even if everything is strictly legal? Also, I think it's good to mentally separate these two things in your head. A dividend payment is a reward for profitability, it is not a salary in any sense. You can call this pedantic, but I think it's important. In my view, if you start to adopt a questionable practice/mindset in some areas, it will creep into other areas too. As I said, YMMV, and it's not something I'd lose sleep over.

For me, the reason for not doing this is that I use an online accountant service. I record everything in and out on there and I trust the software to tell me what I can and can't take as a dividend at any given time. Regardless of what I've actually withdrawn (to a degree).

For the same reasons, I trust the software to be able to unravel any complications fairly easily if I have a need to look back or if HMRC did come knocking.

Part of being a contractor is the freedom and lifestyle and part of that, surely, is being able to take the money as and when (allowing for the obvious, of course) and not alloting it to a strict "salary today, dividend tomorrow" regime.

[jamesbrown]

More FUD.

Whatever. Do as you see fit.

[northernladuk]

Assuming, for the purposes of this question, that you always stay within respective limits and thresholds and that your ltd is always in a healthy position to pay all dividends and taxes accordingly:

Do you specifically, and purposely, match up interim dividends with the actual director withdrawals that you make?

Let's say you declare a dividend of £3k each month. Do you take a corresponding withdrawal of exactly £3k, or does it end up getting aggregated with other payment activity (you pay expenses personally, you're paid a portion of salary etc) which means your actual director withdrawals might be £1k one week, then £500, then another £2k etc, etc.


I'm not worried about breaching tax thresholds or my £10k directors loan limit or anything like that - the online accounting software ensures that's not going to happen. It's more about accounting practise.

Why bugger about with monthly dividends of 3k each? Why not divided yourself the full years allowance in April and stick it in a high interest account?

[eek]

Why bugger about with monthly dividends of 3k each? Why not divided yourself the full years allowance in April and stick it in a high interest account?

He may be like me where I can legitimately pull more money from the company than it could earn in a year ( £10k salary, 2x£27k in dividends, rest upto £50k to pension and there is another £100k from prior years to take).

[d000hg]

Why bugger about with monthly dividends of 3k each? Why not divided yourself the full years allowance in April and stick it in a high interest account?

Maybe the company doesn't have sufficient funds/warchest. Starting as new company, it would take some time to get to the point you can do that depending on your rate and bench time.

[JRCT]

Maybe the company doesn't have sufficient funds/warchest. Starting as new company, it would take some time to get to the point you can do that depending on your rate and bench time.

This. I don't have enough to be able to do that at the moment. That said, I think that next year, all being well, I should be able do it in two tranches.