Dividend cock-up

[salaryman]

Whilst doing my accounts and calculating how much of a dividend I could pay myself without going into the upper tax bracket for the 2007/08 tax year, I (very stupidly) confused my company tax year dates with my personal tax year dates. The end result is that yesterday I paid myself a £10,000 dividend, whereas I should have paid myself only £3000.

Is there a legal way to re-imburse the company of this £7,000 to pay back part of the dividend or do I just have to bite the bullet, keep the dividend and pay the extra tax?

[XLMonkey]

Strictly speaking, the answer is no. You've done it now and the transaction has been entered into the accounts. However, if one were minded to do so, then one might think of doing this...

Provided that you have not filed your company accounts/personal tax return yet, then its possible that you could pay yourself a dividend of 3000 and then record the 7000 balance as a directors loan. You would need to tear up the original (10000) dividend voucher and company resolution, and create a new backdated one for the 3000.

Then, you can pay back the directors loan to the company. You would still need to record the benefit of the loan on your personal tax return (Base rate % x loan amount x duration of loan (in years)) x .40 (higher rate tax band). However, this would amount to very little dough (and a lot less than the 1,750 tax you would have to pay instead).

You should check with your accountant, though, as the situation on loans gets a bit fiddly if it straddles the company's year end.

[MikeC1408]

Isn't 5K the max for a directors loan

[DiscoStu]

I think I preferred it when they were noddy-ups

[salaryman]

Isn't 5K the max for a directors loan

I believe this is the case. Looks like I'm going to have to bite the bullet here Own fault though, c'est la vie.

[Ardesco]

Isn't 5K the max for a directors loan

Directors loan can be as much as you like, £5,000 is interest free though.

[r0bly0ns]

I believe that once it goes above 5k the entire amount is a BIK as well, hence the reference to personal tax retuns by XLMonkey

[salaryman]

Then, you can pay back the directors loan to the company. You would still need to record the benefit of the loan on your personal tax return (Base rate % x loan amount x duration of loan (in years)) x .40 (higher rate tax band). However, this would amount to very little dough (and a lot less than the 1,750 tax you would have to pay instead).

You should check with your accountant, though, as the situation on loans gets a bit fiddly if it straddles the company's year end.

Well I transferred the money from my business account yesterday and it won't hit my personal account until tomorrow. If I send the money straight back it will have been out of the business account for ~6 days.

In your formula you state duration of loan in years. How does my 6 day loan fit into this?

Surely companies (big ones, small ones) often make payment mistakes like this? If HMRC took a look at the bank statements, wouldn't it be clear to them what had happened? I'm still waiting for my accountant to get back to me on this, but it sounds like declaring the £10K as a 6-day loan is the way to go?

I haven't actually printed and signed the £10K dividend form yet anyway, so in theory it hasn't ever been declared. It's just a matter of explaining 10K going out of my bank account and returning 6 days later. Once they money is back in, I'll just declare the 3K dividend and transfer the money.

Would this make sense and, more importantly, be legal?

[Fred Bloggs]

Pay the money back immediately, declare the £3000 and formally record (send a note to your accountant) that is a mistake that you drew the larger amount. May not be strictly 100% how it should work, but it was an honest mistake and I'd be amazed if there were consequences.

[Lewis]

Strictly speaking, the answer is no. You've done it now and the transaction has been entered into the accounts. However, if one were minded to do so, then one might think of doing this...

Provided that you have not filed your company accounts/personal tax return yet, then its possible that you could pay yourself a dividend of 3000 and then record the 7000 balance as a directors loan. You would need to tear up the original (10000) dividend voucher and company resolution, and create a new backdated one for the 3000.

Then, you can pay back the directors loan to the company. You would still need to record the benefit of the loan on your personal tax return (Base rate % x loan amount x duration of loan (in years)) x .40 (higher rate tax band). However, this would amount to very little dough (and a lot less than the 1,750 tax you would have to pay instead).

You should check with your accountant, though, as the situation on loans gets a bit fiddly if it straddles the company's year end.

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.