How much more dividend to take out to be tax-efficient?

[jamesbrown]

[Maslins]

If a dividend is legal, it's legal. The paperwork should be prepared accurately in all cases.

This. I see no reason why HMRC would spark an enquiry just because dividends were high. They're going to love it, lots of people who would've stuck to £30k divis suddenly paying much more on the basis of 25% tax now better than 32.5% next year. Short term = big win for HMRC coffers.

[northernladuk]

@UK Contractor Accountant - can you tell me which company you work for?

Ta

I assumed removing the spaces and add a .com on the end was the answer.

[john@UKCA]

This is taken from a publication on Contractor UK

Revenue realises it’s the last chance

So there is now a last chance opportunity for all Owner-Managed Businesses (OMBs) such as PSC contractors to draw dividends before the current tax year finishes on April 5th 2016 and benefit from the current rates of tax. Because it is likely that many shareholders will take extra dividends in the 2015/16 tax year, HM Revenue & Customs may wish to review dividends paid late in the current tax year. If your company is one which is selected for such an enquiry, what can be done to safeguard against a challenge by HMRC?

Firstly, decide if your company can actually pay a dividend; to be able to do this a company must have distributable reserves, otherwise a dividend cannot legally be paid. Distributable reserves are the company’s accumulated profits, which have not already been paid out - these appear on your balance sheet. Therefore if each year you have taken all the company’s profits out, you may not have reserves to pay any further dividends. You should check with your accountant who will be able to help you.
The dividend paperwork must be drawn up correctly, so minutes and dividend vouchers should be prepared.

[SueEllen]

@UK Contractor Accountant I always pay a large dividend at the end of March. So explain to me why HMRC hasn't complained about this?

[jamesbrown]

This is taken from a publication on Contractor UK

Revenue realises it’s the last chance

So there is now a last chance opportunity for all Owner-Managed Businesses (OMBs) such as PSC contractors to draw dividends before the current tax year finishes on April 5th 2016 and benefit from the current rates of tax. Because it is likely that many shareholders will take extra dividends in the 2015/16 tax year, HM Revenue & Customs may wish to review dividends paid late in the current tax year. If your company is one which is selected for such an enquiry, what can be done to safeguard against a challenge by HMRC?

Firstly, decide if your company can actually pay a dividend; to be able to do this a company must have distributable reserves, otherwise a dividend cannot legally be paid. Distributable reserves are the company’s accumulated profits, which have not already been paid out - these appear on your balance sheet. Therefore if each year you have taken all the company’s profits out, you may not have reserves to pay any further dividends. You should check with your accountant who will be able to help you.
The dividend paperwork must be drawn up correctly, so minutes and dividend vouchers should be prepared.

Yes, I recall reading that and thinking the same thing. It's wrong. What's more surprising, perhaps, is your equivocation as an accountant (I assume?). If you have some inside track on this, feel free to provide the details on how they would determine these details (to repeat again, not that they matter)...

[northernladuk]

I would have thought people trying to go though MVL before it disappears should be the ones worrying. Funny how many business not tax justifications appear just before the tax benefit is withdrawn........ but I bet nothing will happen.

[TheFaQQer]

I assumed removing the spaces and add a .com on the end was the answer.

Possibly - I was hoping that the poster would confirm who they work for, because their advice is interesting.

I look forward to returning in January to see their new site

[TheFaQQer]

Yes, I recall reading that and thinking the same thing. It's wrong. What's more surprising, perhaps, is your equivocation as an accountant (I assume?). If you have some inside track on this, feel free to provide the details on how they would determine these details (to repeat again, not that they matter)...

Maybe the article meant that if you were selected, and you have paid dividends late in the year, then HMRC might be interested in looking into the figures to check that there was sufficient profit to pay the dividend and the paperwork was in order.

That would mean there being an investigation first then looking at the dividends, though - rather than the dividends being some kind of trigger as UK Contractor Accountant implies.

[jamesbrown]

Maybe the article meant that if you were selected, and you have paid dividends late in the year, then HMRC might be interested in looking into the figures to check that there was sufficient profit to pay the dividend and the paperwork was in order.

That would mean there being an investigation first then looking at the dividends, though - rather than the dividends being some kind of trigger as UK Contractor Accountant implies.

Possibly, but I think it's a red herring at best. If HMRC had concerns about dividends, I don't know why they'd focus on one at the end of a tax year (which they'd only know about during an investigation). Surely they'd want to see your dividend paperwork for all dividends issued? Arguing that the total dividend could flag something or that the change between years could flag something has the merit of being internally consistent (if unimportant IMO). Talking about the timing of a specific dividend doesn't IMO and I suspect it flags a misunderstanding of the info. available to HMRC, along the lines of UK Contractor Accountant.