New to Ltd Company and terrified ive done something wrong

[Greg@CapitalCity]

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??

You can pay yourself dividends once an invoice has been raised if you have cash set aside in your business for taxes like VAT or Corporation Tax. Then once the invoice is paid, the business gets back the money it needs to cover its VAT/Corp Tax etc. Its not ideal (like if the invoice does not end up getting paid), but for some contractors its a necessity.

Regarding profit, remember we're talking accrual accounting here, not cash accounting. When the work is done and invoiced, the turnover gets booked to the accounts - not when its paid. You might get this yourself when SJD do your year end accounts - if the timing works you may find a debtor amount for the last invoice worked in the period. Although the invoice has not been paid, its booked in the accounts as turnover (and so profit), and the value booked against Debtors (not Cash in Hand as it still unpaid).

Hope that helps!

[leeboothgb]

Hi,

Thanks again for taking the time to reply. The advise is very much appreciated.

My profit ran low in Feb this year and due to a new contract payment term I thought I would need to lend from the company putting this into the DL Account. It appears that I dont need to class it as that as I had already raised an Invoice for my work. As I thought I was using the DL Account I started taking small amounts as I didnt want the revenue to think I was taking advantage of the DL Account, hence the small amounts when I needed it.

I will speak to my accountant next week about setting up PAYE.

Thanks again I will deffo recommend this forum to other people. My stress levels have gone right down

[northernladuk]

Looks like other posters have covered this off - but just to be sure, you can pay yourself dividends once an invoice has been raised if you have cash set aside in your business for taxes like VAT or Corporation Tax. Then once the invoice is paid, the business gets back the money it needs to cover its VAT/Corp Tax etc. Its not ideal (like if the invoice does not end up getting paid), but for some contractors its a necessity.

It does thank you and it is information I am aware of, we are just coming from a different situation. I read the following

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.

as a situation where the OP has not yet raised an invoice. He claims he has a new LTD and his payment terms are 60 days (yuk!!!!! negotiate better!!!) which would mean to have his first payment in his LTD would be over a month and half old. If that is the situation I wouldn't have read 'new LTD' in to.

If the OP has infact been paid at least once then yes all is fine, it just didn't read like that to me and it wouldn't be the first time we have been asked questions pre-first payment from new guys.

[Kent accountant]

Why don't you take the money out as a Director's loan?

Why don't you take the money out as a director's loan?

Provided your loan never exceeds £5,000 and you pay it back within 9 months of your year end its tax free.

Saves all the hassle of worrying about dividends now.

Once your accountant is back he should be able to set up a very simple process for you to follow, including using a dividend voucher and board minute template (to approve the dividend payment).

That's what I do for my clients.

[psychocandy]

Why don't you take the money out as a director's loan?

Provided your loan never exceeds £5,000 and you pay it back within 9 months of your year end its tax free.

Saves all the hassle of worrying about dividends now.

Once your accountant is back he should be able to set up a very simple process for you to follow, including using a dividend voucher and board minute template (to approve the dividend payment).

That's what I do for my clients.

My accountant is always telling me not to take a directors loan....

I've got a feeling its because the consequences of going over the limit/time are a bit costly...

[Clare@InTouch]

My accountant is always telling me not to take a directors loan....

I've got a feeling its because the consequences of going over the limit/time are a bit costly...

There's always the danger that you get it slightly wrong, and then get taxed on it. If you take a loan of £4,999 and then overpay wages by £2, all of a sudden you have a taxable loan of £5,001 which you might not realise about quickly enough to repay it. The benefit in kind isn't massive on such an amount, but why pay tax when you don't need to? It makes more sense to keep an eye on your business and take dividends as and when necessary (which also means you're more likely to have an idea of what's going on in your company, which is never a bad thing!)