Overpaid dividend

[VFV]

My latest dividend has exceeded the available retained profit at the time. That was about 1.5 months ago, my gross profit balance now covers the tax accrual and obviously i won't be doing the same mistake going forward, however what is the worst case scenario if HMRC were to inspect my books? And is there a way to fix this?

The total dividend was £10,000 and this exceeded RE by approximately £4,300.

Thanks

[Sockpuppet]

Change that to £5000 dividend and £5000 directors loan. WHen the RE covers the second £5000 pay it off with another £5k dividend.


Simples.

[northernladuk]

Need to read up about Directors loans though. I thought it was bad karma to have a directors loan outstanding over the end of the current year so taking out now to payback in the new company year may not be the best option. I posted a load of links the other day about this but confused myself with all the different info so can't state exactly what the rule was.

[VFV]

Thanks a lot for the info guys. My Ltd year end is in October so there won't a problem with outstanding director loans at year end.

Btw do you prepare any paperwork for director loans? And as the loan will be less than £5k it is ok to issue at 0% interest?

Thanks again

[SueEllen]

Need to read up about Directors loans though. I thought it was bad karma to have a directors loan outstanding over the end of the current year so taking out now to payback in the new company year may not be the best option.

Not everyones company year follows the tax year. VFV didn't state whether his did or not.

Also there is nothing stopping the company owning you - the director money after year end - which is what loans are actually for.

[SueEllen]

Thanks a lot for the info guys. My Ltd year end is in October so there won't a problem with outstanding director loans at year end.

Btw do you prepare any paperwork for director loans? And as the loan will be less than £5k it is ok to issue at 0% interest?

Thanks again

You need to make sure your accounts show clearly that you have taken out the loan and that you have paid it back. If you have converted it to a dividend then obviously make sure your board minutes make a record of this.

[Wanderer]

however what is the worst case scenario if HMRC were to inspect my books?

Nothing will happen. As SueEllen says, you enter it in your books as a director's loan or an advance on your expenses and that's the end of it.

You are perfectly within your rights to borrow money from your company as long as the directors (probably only you) agree to allow it. If you borrow more than £5k then you will have to pay interest (which you then take back as company profit minus tax) or benefit-in-kind tax if it's an interest free loan.