Originally posted by northernladuk
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"Illegal" Dividends
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Originally posted by pr1 View Posthypothetical example:
MyCo has £1100 of distributable profits"Don't part with your illusions; when they are gone you may still exist, but you have ceased to live" Mark TwainComment
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Originally posted by Cirrus View PostBe clear what you mean by 'profits'.
Originally posted by Cirrus View PostYou can pay a dividend greater than this year's profits as long as you have reserves in the company. I accept those reserves must also be profits but maybe people don't always think of prior years reserves as distributable profits. Contractors should normally have reserves because of the risk of being out of contract, so you should not normally be constrained by this year's profit when you are contemplating a dividend.
Is not in it's first year
and/or
Makes more than the higher rate tax threshold and therefore it's tax efficient to keep profits in the company rather than pay them all out and keep the warchest in my personal accountComment
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Originally posted by pr1 View Post.. you're (wrongly!) assuming MyCo ...makes more than the higher rate tax threshold"Don't part with your illusions; when they are gone you may still exist, but you have ceased to live" Mark TwainComment
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Originally posted by Cirrus View PostI would be careful about contracting at low rates. It will probably be academic where you keep your war chest. If you're below the threshold you'll struggle to build one.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
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Originally posted by Cirrus View PostI would be careful about contracting at low rates. It will probably be academic where you keep your war chest. If you're below the threshold you'll struggle to build one.
Originally posted by northernladuk View PostI think you've misread, misunderstood and misquoted pr1 there.Comment
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Originally posted by pr1 View Postand/or!!"Don't part with your illusions; when they are gone you may still exist, but you have ceased to live" Mark TwainComment
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Last edited by northernladuk; 18 January 2016, 16:45.'CUK forum personality of 2011 - Winner - Yes really!!!!Comment
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I will try......
Ok, the 1100 is reported by your accounting package. I will therefore assume that this represents the distributable funds that are sloshing around, be they generate this year, or over time.
You pay 1000 dividend on Jan 1. I will also assume you have the meeting to vote them, they are properly documented etc. Then so far so good. You now have £100 of distributable reserves.
On the 2nd Jan 500 quid is paid.
This is the oopsy moment. Was that liability in the accounts ? I assume not, if it was it should have been accounted for in the reserves figure.
If it was not in the accounts should it have been ? Possibly. But that depends what is was, was the liability known about ? Is it for consumption of something ? If so then it was a known liability.
The point really being that it is not simply the cash position. It is the overall accrual based accounting position that matters.
So, if the 500 was expected then the dividends was probably "illegal". I'd prefer the term ill judged.
If it wasn't then no real problem. Though probably still ill judged.
Unauthorised dividends are a mess and you have been given guidance. They do not magically turn into a directors loan (what I can say is that if they are even capable of being reclassified then there is probably a shortage of documentation or some false accounting going on).
What actually results in distributable profits is the subject of a few hundred pages of industry guidance; but I think you should be able to rely on the free agent figure.
Provided you have not breached you fiduciary duty by failing to enter accrued liabilities or readjusting.
Sure, it is entirely possible to get a 500 liability you were unaware of. But 10k, that's a stretch.
Re4ally your question could be phrased as "FreeAgent tells me I have got £1100 I can pay as a dividend, but I haven't told it about all the liabilities, can I still rely on this figure".Comment
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I keep a few k of retained profit kicking around in the business account so that I don't need to worry about this sort of thing.Comment
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