New to Ltd Company and terrified ive done something wrong

[leeboothgb]

Hi All,

I dont normally like to bother people with my issues but was wondering if someone could put my mind at rest or confirm a few things for me.

1 - Am I okay to issue a dividend once the invoice has been raised? I have a new contract which the payment terms are 60 days. This would leave me really struggerling and wondered if I could take a dividend once the invoice has been raised.

2 - Can I Issue a dividend as frequently as I like?

3 - If I issue a dividend for say £3000 can I take this is small sums from the business bank account up to that amount?

4 - I wasnt sure I would have constant work this year, so ive not been paying myself a monthly salary. It turns out ive been really lucky and getting a lot of work. Am I able to start paying myself PAYE at this late stage in the year. So for example tax free amount is something like £5700 now, I think. So could I pay myself that amount shared by the remainder of the tax year?


Sorry if these questions seem a bit stupid. The reason I worry is due to being ripped off by companies in the past (umbrella company) and leaving me with huge tax bills that I have struggled to pay. I now constantly worry that I have messed up and HMRC will come down on me very hard.

Thanks for your time,

Lee

[Greg@CapitalCity]

1 - Am I okay to issue a dividend once the invoice has been raised? I have a new contract which the payment terms are 60 days. This would leave me really struggerling and wondered if I could take a dividend once the invoice has been raised.

Yes, its OK to pay dividends out based on work invoiced (but not yet paid). The obvious problem here is if you do not end up getting paid, the dividends could be illegal (see What to investigate and how: Ultra vires dividends: Contents for more info on this) - however if cashflow is a problem, and you are confident of getting paid, this will work for you.

2 - Can I Issue a dividend as frequently as I like?

Yes.

3 - If I issue a dividend for say £3000 can I take this is small sums from the business bank account up to that amount?

Yes. Complete the necessary paperwork and bookkeeping entries, and the dividend can then be paid out to you over a period of time. To ease your administration, you may prefer to simply declare a dividend each time to pay yourself one - just depends on how you prefer to track this.

4 - I wasnt sure I would have constant work this year, so ive not been paying myself a monthly salary. It turns out ive been really lucky and getting a lot of work. Am I able to start paying myself PAYE at this late stage in the year. So for example tax free amount is something like £5700 now, I think. So could I pay myself that amount shared by the remainder of the tax year?

Yes, you can. The tax free allowance this year is £7,475. If you pay yourself this much salary you will incur a small National Insurance charge - for this current tax year a lot of contractors will pay themselves around the National Insurance secondary threshold (which is £7,072 this year). So if you paid yourself say £7,000 this year from now onwards, you will not have any PAYE or NI to pay through your company payroll (assuming of course your tax code is the usual 747L and you have not received salary from other sources for the current tax year).

Hope that helps!

[northernladuk]

Firstly and most importantly get yourself an accountant. He will help you through this as well as many other minefields you are going to get stuck in. It will cost you but if you are new he can probably save you his costs as your learn the ropes.

I am struggling with Gregs advice. How can you pay yourself dividends once the invoice has been raised. Isn't there a small problem with being paid first? You can't pay yourself money that isn't in your bank yet? What are you going to pay yourself with? Peanuts? I am sure your co bank account does not have a credit agreement?

Also you have to pay yourself dividends from PROFIT. Surely if there is no money there is no profit so it can't be done. The only way I thought you could do this is to start fudging the dates on your paperwork or something?
Can the OP and Greg clarrify??

Re taking it out in small sums. My question would be why?? It messes your accounts up and doesn't look good. I would be tempted to say don't do it like that unless there is a very good reason. I can't think of any legal issues either way but it is bad bookkeeping and only needs you to cock up once and you are in a world of doo doo

[SueEllen]

I am struggling with Gregs advice. How can you pay yourself dividends once the invoice has been raised. Isn't there a small problem with being paid first? You can't pay yourself money that isn't in your bank yet? What are you going to pay yourself with? Peanuts? I am sure your co bank account does not have a credit agreement?

Also you have to pay yourself dividends from PROFIT. Surely if there is no money there is no profit so it can't be done. The only way I thought you could do this is to start fudging the dates on your paperwork or something?
Can the OP and Greg clarrify??

I think the OP isn't in first few months of running their company.

Some people do all their accounts particularly VAT calculations from when invoices are raised rather than when money is received into the account. (Your yearly turnover is done from that date anyway.)

This works out fine until you start getting a late paying client or a client who goes bust and doesn't pay you at all.

Re taking it out in small sums. My question would be why?? It messes your accounts up and doesn't look good. I would be tempted to say don't do it like that unless there is a very good reason. I can't think of any legal issues either way but it is bad bookkeeping and only needs you to cock up once and you are in a world of doo doo

When you have your board meeting and raise a dividend you can pay it out when you like as it's the date on the paperwork that is important.

In my own case if I choose to pay my dividends into one of my personal current accounts I have to do the payments over consecutive days due to the faster payments limit on that account.

[Wanderer]

How can you pay yourself dividends once the invoice has been raised. Isn't there a small problem with being paid first? You can't pay yourself money that isn't in your bank yet?

The company would pay the dividend on the expected profit from the invoice. This would come out of the money put aside for CT, VAT and expenses. I understand that it is legal to do this provided that there is no reason for you to suspect that the invoice won't be paid.

I know that contractors like us would tend to ring fence the CT/VAT money but many businesses will use this money as part of their day to day trading funds.

Re taking it out in small sums. My question would be why??

Probably cashflow. If the OP is declaring a dividend based on an unpaid invoice then perhaps the company doesn't have the cash at hand to pay the dividend in full.


Two things for the OP though:

1. As Northernladuk says - GET AN ACCOUNTANT. It will save you a lot of stress and prevent you making a mess of things and getting fined or paying more tax than you have to. "I can't afford one" is not an excuse.

2. Get some savings in the bank, you need at least 6 months worth of living expenses to cover you for the bad times. Don't go running your company this close to the wire or it will bite you.

[leeboothgb]

Hi All,

Thanks ever so much for the replies. My mind has been put at ease.

I do have an accountant, but he is away so I just wanted to ask the questions as I was getting a little worked up.

Thanks again and hope you all have a good day

Lee

[psychocandy]

Firstly and most importantly get yourself an accountant. He will help you through this as well as many other minefields you are going to get stuck in. It will cost you but if you are new he can probably save you his costs as your learn the ropes.

I am struggling with Gregs advice. How can you pay yourself dividends once the invoice has been raised. Isn't there a small problem with being paid first? You can't pay yourself money that isn't in your bank yet? What are you going to pay yourself with? Peanuts? I am sure your co bank account does not have a credit agreement?

Also you have to pay yourself dividends from PROFIT. Surely if there is no money there is no profit so it can't be done. The only way I thought you could do this is to start fudging the dates on your paperwork or something?
Can the OP and Greg clarrify??

Re taking it out in small sums. My question would be why?? It messes your accounts up and doesn't look good. I would be tempted to say don't do it like that unless there is a very good reason. I can't think of any legal issues either way but it is bad bookkeeping and only needs you to cock up once and you are in a world of doo doo

Must admit I agree with NLUK here. Surely its not profit until its been recieved? Its all well and good to invoice but its not 100% guaranteed is it?

Yeh, same about the small sums. Why? Too much hassle. If you aint got the money just declare a smaller divi.

[Sockpuppet]

You will want to look at setting up a DLC (Directors Loan Account) to make all this simple esp if your taking small amounts.

E.g. you pay yourself or declare a dividend.

First transfer the money into the DLC (a notional account, no money moves). So your DLC is now showing say £10,000 to the good.

When you want cash you transfer say £1k cash (from your bank account) to yourself. Credit this against the DLC so its now showing say £9,000 to the good.

Makes declaring dividends and the resulting paperwork really easy to keep track of.

[psychocandy]

Hi All,

Thanks ever so much for the replies. My mind has been put at ease.

I do have an accountant, but he is away so I just wanted to ask the questions as I was getting a little worked up.

Thanks again and hope you all have a good day

Lee

Lee,

Yeh. You really need to speak to him about sorting out a salary for yourself. £7000 (roughly) salary is the most tax efficient way of getting money out (theres no tax and NI on this).

For instance, say you earn £50K profit contracting. Ignoring expenses you'll pay £10K CT on this leaving £40K for divis (again ignoring 40% tax issues).

Better would be salary of £7000 (no tax). £43K profit = £8.6K CT. Total for you = £7K salary + £34.4K divis = £41.4K after tax.

[JamJarST]

Must admit I agree with NLUK here. Surely its not profit until its been recieved? Its all well and good to invoice but its not 100% guaranteed is it?

Yeh, same about the small sums. Why? Too much hassle. If you aint got the money just declare a smaller divi.

Well from an accounting point of view using the accrual method which is GAAP, it is profit. If they fail to pay, you write off that loss at a later date. When your year end comes around your total turnover is everything you invoice, not everything that has been paid.

Having said that I would generally wait to be paid before I thought the money was mine.