When can I take divs - Invoice date or payment date

[contractor55]

I previously asked a questioning regarding end of year accounts and giving my accountant the books when the invoices have been sent or waiting till I receive the money and then sending him the books. Th answer I got from the board and my accountant was that I could send the book away on the invoice date rather then the date I`ve been paid out- 1-2 months after tax year

I have a similar question

Again I usually wait until I get all my invoices paid before I pay divs and calculate Corp Tax etc , Can I pay out my DIVS based upon the invoiced being sent rather then wait till I receive the money. As normal I work via an agency so the payments are regular based upon 28 day payment schedule. I build up money in my company due to saving for Corp Tax per month so paying out the DIVS, Out of Pocket before payment will not put me in a negative balance. Basically if I leave it till I get paid I end up having 3 months wages having last 4- 4.5 months due to payment dates which I rather avoid

thanks

[SueEllen]

Makes no difference.

You just need to be able to pay the corp tax as the dividends come from the profit you make after corp tax has been calculated.

BTW wages and dividends are different.

Wages are a company expense.

Dividends come out of company profit.

If the company has no profit that year (or retained profit) you don't pay dividends but you have to pay your employees wages except in certain legal circumstances.

[Taxless]

Short answer, you don't have to wait untuil the invoices are paid.

The crucial point is that you have to be able to show that any dividend is being paid out of undistributed reserves, i.e. after tax profits.

If you used an accounting package such as Sage then you can print out management reports which will show what those reserves are, otherwise a bit of work on an Excel spreadsheet should be OK.

It doesn't sound likely but remember, if you pay a dividend in excess of those reserves then it will be an illegal dividend.

I have assumed that you are preparing all of the necessary paperwork that HMRC may ask to see, Board Minutes approving the dividend payments, dividend vouchers etc.

[Scrag Meister]

Depends if you have any cash in the bank at invoice date.

Personally I pay divs approx 3-6 monthly, depending on contracts, personal cashflow and total income for the year so far.

[backrubber]

The following two applications enable you to calculate corporation tax and the size of dividends that can be taken:

Earnings Tracker

and

MyBookkeepingManager

[TykeMerc]

As I understand it it's irrelevant if the invoices have been paid yet, but being the cautious type and having had to sue for payments in the past when I used to have several small direct clients I only draw dividends from cleared funds.

[Scrag Meister]

As I understand it it's irrelevant if the invoices have been paid yet, but being the cautious type and having had to sue for payments in the past when I used to have several small direct clients I only draw dividends from cleared funds.

WTMS, cleared funds.

[LisaContractorUmbrella]

Absolutely - if the cash isn't in the bank don't spend it

[zedAccounts]

My understanding is that dividends should only be drawn against profits realised, i.e. those invoices paid off.

ZED.

[Taxless]

Normally, the payment of a dividend is governed by the company's Articles of Association but in the absence of anything unusual in those, it is in accordance with the Companies (Tables A to F) Regulations.
A final dividend must be recommended by the directors and approved by the company members in a general meeting, although a lot of small companies no longer use AGM’s and so the approval of a final dividend is by elective resolution.
The directors may pay interim dividends if they are justified by the level of the company's distributable profit.
These may include retained profits of an earlier accounting period. Whenever a dividend is declared, the company's financial records must be adequate to demonstrate that there are available profits to cover the dividend.
The ICAEW Guidance Note on determining realised profits for distribution indicates that when a dividend is declared, the directors should be able to take a reasonable judgement as to profits, losses, assets and liabilities, provisions, share capital and reserves. The note goes on to say that the use of reliable management accounts satisfy this requirement.
I accept that in most one-man companies management accounts are probably an alien concept, but I would stress that it is not enough to merely look at the cash in the bank. If for example, during the year you were able to anticipate profits of £100k, you might declare an interim dividend of £80k but a later expense (not anticipated when the dividend was declared) arises, of £40k, so at the year end the profits available to distribute were only £60k, then although it appears that the interim dividend of £80k is now illegal, it will still have been validly declared at the time, but if the expense could have been anticipated at the time the dividend was declared then it would have been illegal from the outset.
You do need to try and establish the underlying profitability of the business before declaring a dividend and remember that in the event of an HMRC enquiry they are likely to ask to see all of the paperwork associated with dividend payments and may well ask how you go about establishing whether the level of dividends paid during the year were valid or not.

Distributable profit.

Not just as easy as it sounds and best to get input from your accountant. If you want some fun and want to go through the process yourself, here is the Technical Guide issued by the joint UK accountancy bodies , http://www.icas.org.uk/site/cms/down...le_profits.pdf :