Interim dividends

**Bluebird** · 31 August 2007, 11:27

Originally posted by Mustang View Post

Dividends are naturally paid out of profits after CT has been deducted. This is easy for regular dividends but is a bit of a "guess" when it comes to interim ones.

What happens if you declare interim dividends (based on a predicted profit) but then business goes a little pear shaped and there will not be the profit you anticipated? Can you repay the dividends? Can you "convert" them to a directors loan?

most businesses take out a loan...

**ferret** · 31 August 2007, 11:29

I think you can repay div's. But really you should be looking at what is IN the bank, not what id FORECAST to be in the bank.

My accountant does interim calcs for me to see what is in the bank, what corp tax would be due on that, what VAT is outstanding and then see what is left - take a chunk of this (leaving some in for just in case) and you will be fine.

**chicane** · 31 August 2007, 11:33

This happened to me once in a previous venture. The accountant gave us directors a slap on the wrist, and wrote a short note into the company accounts stating something along the lines of (forgive any technical inaccuracies):

"The company's final profits were lower than projected and excessive dividends were paid out in advance of the final profit figure being known. The Directors have taken steps to ensure that sufficient profits will be available to rectify this situation within the first quarter of the next accounting year".

Hector didn't come sniffing and it all turned out to be something of an anti-climax compared to what might have happened. I'd imagine they're more interested in large-scale fraudsters than small companies that happen to have paid out a few grand too much in divs in good faith.

**VectraMan** · 31 August 2007, 12:06

It's not exactly rocket science. You should only pay dividends out of clear profit, which means leave enough to cover costs for the rest of the year, then pay yourself 80% of the remainder so far as dividends.

In reality, the only costs the likes of us have are our salaries and accoutancy fees (assuming you're not working so no expenses). And as a director you don't have to pay salary if you don't want to.

So the only way you can get it wrong is if you pay more than that 80% and count on earning the extra later on to make the CT payment.

**Mustang** · 31 August 2007, 14:41

Originally posted by VectraMan View Post

It's not exactly rocket science

Agreed, but when things go pear shaped it gets complicated

Originally posted by VectraMan View Post

You should only pay dividends out of clear profit, which means leave enough to cover costs for the rest of the year,

If only life were that simple. When the dividends were taken there was an assumption that revenue and expenses would remain similar for the remainder of the year.......

**philip@wellwoodhoyle** · 31 August 2007, 15:49

It doesn't matter if things go pear shaped after the dividend. If at the time of the dividend, you had enough retained profits (after tax provision) to pay it, then the dividend is legal and will stand. If, in the following few months, the company makes a loss due to things going pear shaped, that is of no consequence, and yes, you could go into negative reserves, that of course have to be cleared from profits before the next dividend could be paid. You don't have to provide for future expenses or contingencies, you just need to make sure that at the time of the dividend, the numbers stacked up.

**xoggoth** · 31 August 2007, 16:38

NAA but It ain't illegal. I have sometime seen it stated on here that it is illegal to trade at a loss, it isn't, it is illegal to trade while insolvent, not the same thing. If the directors can loan the money to cover any company debts it isn't insolvent.

Interim dividends