Dividend Overpayment

[Wanderer]

Of course. I think both sides is completely valid.

I agree. Northernladuk is leaning towards the more conservative approach and he has a point. It's better not to borrow company money unless you are absolutely sure you know what you are doing.

However, if you are running a close company then there are no shareholders to complain so it's not such a big problem unless the director spends all the company's money and can't pay it back.

I'd say don't worry about it and just balance it up at the end of the year but make damned sure you pay the loan back (by declaring a dividend from profits) before the end of the company year.

[northernladuk]

Found a very interesting thread on Accounting web which appears to cover this plus other general tardy contractors approach to divis and even the accountants don't agree...

Dividend Paperwork | AccountingWEB

Quite funny to see the accountants side and them trying to screw us over

Now, in my experience small (sole director, family run) companies are a headache. They never seem to have the time to do all their own work let alone worry about the legalities of taking money out of their company - surely it's theirs anyway?

It was for this reason that we changed our practice. All our companies now utilise us to produce at least quarterly management accounts, sit in on their "board meetings" and approve dividends as necessary.

This has significantly improved our fee income, the client feels that we are taking an active part within their business and has produced additional business advisory services too.

If you take the initiative to turn what appears a negative to something much more positive your client will thank you and reward your pocket.

Perhaps we could all learn to be a bit more proactive?

[Scrag Meister]

Personally I wouldn't. Over paying dividends from money that is not yours I believe is illegal. You don't just fix something you have done illegally by sorting it out over a few months to suit you. It is not your money, sort it first before paying yourself a divi.

You don't mention if you have a warchest though. Is teh comapny in profit overall or do you live hand to mouth?

If you have paid yourself money that belongs to HMRC pay it back quick.

Personally I agree with your sentiment, but from experience I have found that HMRC aren't too picky if everything is square at the year end.

[TimCaprica]

I really think you should be concerned about the illegal dividend point. If HMRC come along and investigate (which admittedly is not that likely but a risk nonetheless) they will say that this is a salary payment and want you to pay Er and Ee NIC. The same can happen if you don't have dividend vouchers and board minutes to document the payment of a dividend.

So for now call it a directors loan until you do have the reserves to pay a legitimate dividend. Always make sure you are assuming 20% (ideally 25% corporation tax) when working this out.

As long as you don't have an outstanding loan at year end there won't be any tax cost.

Hope that helps.

@TimCaprica
Caprica Online

[THEPUMA]

I really think you should be concerned about the illegal dividend point. If HMRC come along and investigate (which admittedly is not that likely but a risk nonetheless) they will say that this is a salary payment and want you to pay Er and Ee NIC. The same can happen if you don't have dividend vouchers and board minutes to document the payment of a dividend.

So for now call it a directors loan until you do have the reserves to pay a legitimate dividend. Always make sure you are assuming 20% (ideally 25% corporation tax) when working this out.

As long as you don't have an outstanding loan at year end there won't be any tax cost.

Hope that helps.

@TimCaprica
Caprica Online

Why will they say that? WHy won't they say that it is an overdrawn director's loan account?

[jungleboogy]

I saw this article on contractorcalculator:-

"You can distribute dividends at any time. You just have to have money in the bank account to do so. But, beware, at the end of your tax year you must ensure that the total of all your dividends taken have been covered by profits earned by the company after all expenditure (including salaries) and corporation tax. If you pay dividends out of untaxed earnings, the Revenue will express its displeasure with your actions".

It's certainly not something I'm planning to repeat in the future, the fact my end of year accounts have not been submitted yet and I don't plan to draw a dividend for the next 2 months will redress the balance. In future I'll make sure I only draw dividends from the profits calculated each month.

Thanks for your advice guys

[northernladuk]

Problem is it changes everywhere you read and although the web and google is great for finding info it is also a nightmare for knowing which is right. To counter the find above I found this... I am not saying this one is right. I see that end of year seems fine now but just for example....

An illegal dividend can be declared when there are insufficient profits to cover the dividend at the time of payment,” explains James Abbott of specialist contractor accountant Baker Watkin. “A dividend can also be illegal if a contractor fails to complete board meeting minutes of the dividend decision and a dividend voucher for shareholders, according to the requirements of the Companies Act.”

Found on

[Wanderer]

An illegal dividend can be declared when there are insufficient profits to cover the dividend at the time of payment,”

Yep, that's correct. If there is no profit then there can be no dividend so it's just accounted for as a director's loan and repaid when the company has some profits again.