Dividends spread over two tax years with different rules

[bluerobbo]

Hello, I am hoping someone can help me.

I am a company director. In February 2016 I was allocated a dividend of approx £40k (net of the 10% dividend tax). For cash flow and other business reasons, the whole amount was not available to me. I was only able to take about £16k at the time. I only declared that £16k on my self-assessment for 2015-16, and of course the dividend tax had already been paid so I received a credit for this on the HMRC calculations, reducing my tax by that amount (I mean the 10% tax already paid on the £16k of the dividend that I declared).

My dividend tax statement from February 2016 shows the total gross amount of the dividend (approx £44.5k), the 10% tax, and the net amount (£40k), even though I only received £16k of that dividend in that tax year.

I received the rest of the dividend (approx £24k) in 2016-17, so I have now declared that on my self-assessment which I am completing now, but of course I am not being given the 10% tax credit automatically, as the system has changed. I think that effectively I am declaring that dividend net of the 10% tax, but it will be treated as a gross dividend, so I will pay 32.5% tax and not receive any tax credits.

I was going to attach a note to my current tax return asking HMRC to give me the 10% tax credit, but then it occurred to me that maybe I should have actually declared all of the dividend in 2015-16, even though I didn't receive it all then, and I'm worried that HMRC might impose some sort of penalty on me for not doing that.

I had other dividends from the company in both tax years, but they were taken within the tax years that they were declared. so no problem with those.

What would you advise? Should I attach a note to HMRC or not?

[TheCyclingProgrammer]

No, you’ve done this all wrong.

Presumably the dividend was credited to your director loan account when declared which is when it would have been deemed “paid”. You should have declared the whole dividend on your 15/16 tax return even if you didn’t actually transfer all the money at that point. What does your dividend voucher say? It should indicate the dividend payment date.

You will need to submit an amendment to your 15/16 tax return and pay the tax you owed for that year plus interest. I’m not sure if you’ll be liable to any other surcharges.

Edit: just to be sure, when the dividend was declared you say the money wasn’t “available”. Was this purely due to cash flow? Are you certain that the company had sufficient retained profit to cover the declared dividend? If not, you may have declared an illegal dividend. Speak up your accountant ASAP.

[northernladuk]

Why don't you have an accountant?

Just the fact you are declaring dividends that aren't available to you starts the questions coming that we just can't answer so your accountant should be helping you... but you don't have one I guess?

[craigy1874]

never mind all that, I just want to know how you managed to get a dividend as a company director!

[bluerobbo]

Many thanks for the advice. I am seeing a chartered accountant later today.

[Hobosapien]

For sure get it checked over by a pro but I have a feeling the original divi in 2015-2016, before the new divi tax, means it all cancels itself out on the self assessment in that unless the divi took you into higher rate tax band then the dividend tax credit covers the tax aspect, so nothing to worry about on self assessment in terms of declaring the full amount or not, the tax due would be the same.

So you may be able to just take the rest of the divi declared for 2015-2016 held in the company and not put anything relating to it on the self assessment for 2016-2017, and no further tax due anyway for either year.

It's a lot simpler doing it the right way in the first place but hopefully the above is along the lines the pro will say, so no additional tax to worry about on the previously declared but not fully received divi.