Taking Dividends Out Of Co Tax Funds

[malvolio]

I'm sure this has been asked before but can you take dividends based on profits from invoices not yet paid? i.e invoiced but not recieved the cash yet

In theory yes, since an invoice represents a cashable asset to the company. (It's also how Philip Green took a tax-free £1.2 bn divi out of TopShop against a stated profit of £700m, by using "guaranteed" proerty sales that hadn't completed yet. HAd they not gone thruogh he would have been in trouble....)

But as Claire says, it is poor risk management. A director has a legal duty to operate his company legally and safely. It is far better to get to the point where dividends are taken after the event, i.e. when you know what the available funds are. If that means leaving some gross income in the company until year end to maintain an adequate capital reserve, then that's what you should do.

[psychocandy]

Yes, because as soon as an invoice is raised it's effectively increasing your profit as far as the Profit & Loss account is concerned (accounts are prepared on an accruals basis). Assuming you have the funds in the bank, obviously, and you're happy it's not going to be a bad debt!

OK, yeh, I guess it gets a bit complicated though if it becomes a bad debt?

So, even though the money in the account is CT/VAT money, its ok to take because you know the invoice will be paid soon. And, yes, dividend is based on P&L done by my accountant who, as you say, has included this months invoice (not yet paid).

[Clare@InTouch]

OK, yeh, I guess it gets a bit complicated though if it becomes a bad debt?

So, even though the money in the account is CT/VAT money, its ok to take because you know the invoice will be paid soon. And, yes, dividend is based on P&L done by my accountant who, as you say, has included this months invoice (not yet paid).

If it's a bad debt then it's treated like an expense, and reduces your profit by the original value that it increased your sales by, so could turn your P&L bottom line into a loss. What you need to be able to do is justify that at the time you declared the dividend you had sufficient profits and no reason to believe that you had any bad debts. This is of course assuming you get to the stage where your company can't pay it's CT and you have to ask HMRC for time to pay, and have to explain why you can't pay them but you took money out yourself!

[psychocandy]

If it's a bad debt then it's treated like an expense, and reduces your profit by the original value that it increased your sales by, so could turn your P&L bottom line into a loss. What you need to be able to do is justify that at the time you declared the dividend you had sufficient profits and no reason to believe that you had any bad debts. This is of course assuming you get to the stage where your company can't pay it's CT and you have to ask HMRC for time to pay, and have to explain why you can't pay them but you took money out yourself!

Might wait for the cash to get there then.

[ASB]

For the terminally bored/worried etc, I think this is the correct guidance.

http://www.icas.org.uk/site/cms/down...le_profits.pdf

Clare summed it up in rather fewer words though.