Dividend cock-up

[salaryman]

This sounds very complicated to me. Personally I would just pay back the £7,000 and record the dividend as £3,000. If HMRC investigate then tell them the truth, that an administrative error meant that a cheque was written for the wrong amount. It was spotted and corrected. Surely HMRC don't expect people to never make a mistake. Correcting it with loans just seems to be making the situation worse in my opinion.

This is what I'd like to do, but in the accounts you still have to classify each of these transactions. In your scenario, what would I classify the £10K going out as, and what would I classify the £7K coming back in as, since neither of these transactions relates to the actual £3K dividend amount?

It seems to me that the simplest thing to do is classify the £10K out as a Director Loan, repay the £10K which is classified as a Repayment of Director Loan, then just pay the £3K dividend.

I could be wrong though!

[VectraMan]

I would just pay the money back (can you cancel it if it hasn't arrived in your personal account yet?), and tear up the dividend declaration.

Mistakes happen. Classing it as a director's loan for .004% of a year (that's 4 hours) seems incredibly anal and it would be silly if you got into trouble because of it. It's not like there's been any net gain.

But IANAA.

[salaryman]

I would just pay the money back (can you cancel it if it hasn't arrived in your personal account yet?), and tear up the dividend declaration.

Not sure if I can recall it -- might as well check.

Mistakes happen. Classing it as a director's loan for .004% of a year (that's 4 hours) seems incredibly anal and it would be silly if you got into trouble because of it. It's not like there's been any net gain.

If I don't classify it as a Director Loan, what should I classify it as? I have to classify it as something.

[Lewis]

This is what I'd like to do, but in the accounts you still have to classify each of these transactions. In your scenario, what would I classify the £10K going out as, and what would I classify the £7K coming back in as, since neither of these transactions relates to the actual £3K dividend amount?

It seems to me that the simplest thing to do is classify the £10K out as a Director Loan, repay the £10K which is classified as a Repayment of Director Loan, then just pay the £3K dividend.

I could be wrong though!

I'd just put in my accounts

Divended -£3K
Cheque written in error -£7K
Correction of error above +£7K

I have been overpaid and underpaid by agencies. I would be amazed if you had to start playing around with Director's Loans just to sort out this issue. Plus if you have a loan of >£5K it becomes a BIK. Surely this is way over the top. Just correct the mistake and make an appropriate note in your accounts.

Plus ... why not ask your accountant what he/she recommends?!

[salaryman]

I'd just put in my accounts

Divended -£3K
Cheque written in error -£7K
Correction of error above +£7K

I have been overpaid and underpaid by agencies. I would be amazed if you had to start playing around with Director's Loans just to sort out this issue. Plus if you have a loan of >£5K it becomes a BIK. Surely this is way over the top. Just correct the mistake and make an appropriate note in your accounts.

I hear you and I'll consider this for sure. Actually, the accounting software I use (FreeAgent Central) doesn't actually let me classify transactions made in error. Hmmm.

Plus ... why not ask your accountant what he/she recommends?!

I have -- I'm still waiting for them to respond!

[Ardesco]

I hear you and I'll consider this for sure. Actually, the accounting software I use (FreeAgent Central) doesn't actually let me classify transactions made in error. Hmmm.



I have -- I'm still waiting for them to respond!

You should be able to void the transaction somehow. If not I assume they have a helpdesk you can call who can sort it our for you.

[salaryman]

You should be able to void the transaction somehow. If not I assume they have a helpdesk you can call who can sort it our for you.

Yeah, I can get these transactions removed from FreeAgent (they're really helpful like that) but they'll still appear on the bank account statements should HMRC come knocking.

I guess if that happens I'll just explain that it was a payment made in error which was transferred right back. Can't say fairer than that, no?

[r0bly0ns]

You would be better off recording it in your accounting software if you can, otherwise if HMRC do a review and see transactions in your bank that don't appear in the accounts they may decide to do a full audit rather than a quick review.

[salaryman]

You would be better off recording it in your accounting software if you can, otherwise if HMRC do a review and see transactions in your bank that don't appear in the accounts they may decide to do a full audit rather than a quick review.

Fair enough. Question remains, what should I classify them as.

My accountant has said I should class them as a Director Loan after all. Even though the amount is > £5000 he says, "I think taking into account the shortness of the loan and the fact this was not a deliberate ruse to take money away from the revenue, I cant see there being a problem."

So there you go. I'd personally prefer to classify them as a mistake somehow, but my accounting software doesn't support that.

[Archangel]

Fair enough. Question remains, what should I classify them as.

My accountant has said I should class them as a Director Loan after all. Even though the amount is > £5000 he says, "I think taking into account the shortness of the loan and the fact this was not a deliberate ruse to take money away from the revenue, I cant see there being a problem."

So there you go. I'd personally prefer to classify them as a mistake somehow, but my accounting software doesn't support that.

I once borrowed 10k from MyCo, for about a week or 10 days. When the revenue investigated me they asked me about it and I just said "directors loan", "repaid". They made no further mention of it.

As others have said, just record it in the books as a directors loan + and - and stop worrying.