Divendend frequency

[boredsenseless]

My accountant has always told me that in order to avoid dividends being reclassified as salary (attracting NI) I must be able to prove that they were paid out of profits, and prove that I knew at the time I declared the dividend that the profits were there.

When I used to declare regular quarterly dividends, along with my minute of the directors meeting declaring the dividend I kept a copy of the accounts made up to the date of the declaration. (This was a copy made from my version of the accounts in Quicken, which 99% matched the official version kept by my accountant.) I don't keep copies of the accounts any more because the company has enough retained profits that there's no doubt the dividends are valid.

I did a similar thing, in that I just took PAYE salary in the first year, and used savings to cover shortfall. From then on I've been able to pay dividends from previous year retained profit, hence bo issue on the legality of the payment

[ASB]

Hence no issue on the legality of the payment

Ok, prev yr retained profits 10k. No fixed assets etc, nominal distributable funds = 10k. The next year is truly appalling, tading loss is made of 15k. Shareholders funds are now -5k. But can the dividend of (upto) 10k still be declared? [Ok, the company won't have the funds to actually pay it but that is a different thing]

I have a thought that this might not be allowed under current accounting standards - i.e. it is the balance sheet at the date of the distribution that matters.

Granted this is a convoluted made up example and unlikely to happen.