Divi before end of tax year

**SueEllen** · 11 February 2012, 21:55

This has been asked before.

1. The resident accountants opinion is you can do either. However you do have the risk that your client(s) will not pay you if you do it on invoices received.

2. Yes you can do that. Some dividends from larger companies are paid by cheque and if you generally have 6 months to bank a cheque but the dividend paperwork gives the tax year.

**Contreras** · 12 February 2012, 18:54

Originally posted by knight007 View Post

My question is, can I calculate the company profits based on invoices billed? or do I have to wait for the invoices to be paid?

The way I am handling my flat rate VAT payments is waiting for the the invoices to be paid (I believe this is known as 'cash accounting' in accounting world).

Afaik, there is no equivalent "cash accounting" method for corp. tax. If an invoice has been issued then it is profit (and even if an invoice has not yet been issued but is will be due for services already delivered then it is still profit).

Also, does the dividend have to be paid before the end of the current tax year in order to be accounted in my 2011-2012 income. Or are the rules that the dividend paperwork has to be issued in the tax year but the payment can follow in the next tax year if required ? I want to be able to wait for an invoice to be paid at the end of April 2012 and then pay the dividend.

Declare (and pay) the dividend this tax year, but pay an equal amount back to the company in form of a director's loan. Could be just a pair of book-keeping entries if cash flow doesn't permit the actual transactions. The company then still owes you but in the form of a loan and not an unpaid dividend.

IANAA! but HTH.

**Wanderer** · 12 February 2012, 22:51

Originally posted by Contreras View Post

Declare (and pay) the dividend this tax year, but pay an equal amount back to the company in form of a director's loan. Could be just a pair of book-keeping entries if cash flow doesn't permit the actual transactions. The company then still owes you but in the form of a loan and not an unpaid dividend.

I wouldn't bother doing it like that. Just declare the dividend, do the paperwork and then take the money as and when you see fit.

I can't see how a company could not have enough money to pay out a dividend though - there should be cash in the company set aside for corp tax or VAT that the dividend can be paid out of, surely?

**Wanderer** · 12 February 2012, 22:59

Originally posted by knight007 View Post

does the dividend have to be paid before the end of the current tax year in order to be accounted in my 2011-2012 income. Or are the rules that the dividend paperwork has to be issued in the tax year but the payment can follow in the next tax year if required ? I want to be able to wait for an invoice to be paid at the end of April 2012 and then pay the dividend

My understanding is that you could raise an invoice on the 1st April 2012 (with 30 day payment terms) and then declare a dividend the same day. This dividend counts against your 2011/12 tax year but it could be paid to you on the 30th April when the cash arrives in the company account.

If you already have cash in the company bank account then you can pay the dividend the same day you issue the invoice. The caveat here is that you must have a reasonable expectation that the invoice will actually be paid.

That's my understanding - can someone please correct me if I'm wrong!

**Greg@CapitalCity** · 13 February 2012, 09:18

Originally posted by Wanderer View Post

That's my understanding - can someone please correct me if I'm wrong!

Agreed.
(1) As above, just ensure your company has enough reserves to make the dividend payment. Base this decision off your management accounts prepared using accepted accounting principals (eg accruing for work done, but not yet paid);
(2) Timing of payments - so long as your paperwork backs up an interim dividend declared on or before 05 April 2012, then it is taxable in the 2011/12 tax year. Have a read of sections 12 & 13 of the following link - CTM20095 - ACT: General: Notes on company law aspects of dividends

Hope that helps you.

Divi before end of tax year