Dividends mistakenly declared

[flexiblemouse]

I have mistakenly declared two dividends from the period March 2012 - April 5th 2012 my company accounts run Jan to Jan. This was actual a mistake on my behalf as for some stupid reason I got it into my head that the tax was calculated from Jan to Jan not April to April. I never intended to take that much in dividends and was planning on keeping below the higher rate of tax. I asked my accountant if I could either repay the dividends or was it possible to amended the dates on the dividends certificates to this tax year. He said he could change them but strongly recommended not to do this as if the company was investigated this could be deemed as tax avoidance and could result in large penalties and interest charges on the tax they calculate to have been avoided.

The second of the two dividends was actually raised on the 4th April but not paid until the 11th April, I know HRMC calculate from when the certificate was raised. I asked him if we could just amended this on so at least I would only be subjected to higher tax on one dividend. The certificate would then be raised in this year the payment also in this year. His response to this was that he could amended the certificate and this would not show on my end of year accounts, however they would keep the email requesting the change on file and once again if HMRC investigation took place this could be deemed as tax avoidance.

So my real question is if I was to have the accountant change the date on the dividend how would HMRC view this If discovered? this was a genuine mistake on my behalf. Would they be likely to pickup on the fact that I requested a date change? what sort of penalties could I expect if they found this five years down the road. Should I just accept that this has been a mistake on my behalf and put it down to an expensive lesson?

Thanks for any advice.

[Wanderer]

As long as your shareholders (probably only you and maybe a spouse) are OK with it, throw away your dividend paperwork and tell the accountant that what you thought was a dividend was actually a director's loan.

As long as the directors loan is paid off or not more then £5k at 9 months after the end of the company year you should be OK, though if it's > £5K at any time then you have to pay it back with interest or pay the BIK tax on the beneficial loan. (Do a search on directors loans here)

[Clare@InTouch]

I have mistakenly declared two dividends from the period March 2012 - April 5th 2012 my company accounts run Jan to Jan. This was actual a mistake on my behalf as for some stupid reason I got it into my head that the tax was calculated from Jan to Jan not April to April. I never intended to take that much in dividends and was planning on keeping below the higher rate of tax. I asked my accountant if I could either repay the dividends or was it possible to amended the dates on the dividends certificates to this tax year. He said he could change them but strongly recommended not to do this as if the company was investigated this could be deemed as tax avoidance and could result in large penalties and interest charges on the tax they calculate to have been avoided.

The second of the two dividends was actually raised on the 4th April but not paid until the 11th April, I know HRMC calculate from when the certificate was raised. I asked him if we could just amended this on so at least I would only be subjected to higher tax on one dividend. The certificate would then be raised in this year the payment also in this year. His response to this was that he could amended the certificate and this would not show on my end of year accounts, however they would keep the email requesting the change on file and once again if HMRC investigation took place this could be deemed as tax avoidance.

So my real question is if I was to have the accountant change the date on the dividend how would HMRC view this If discovered? this was a genuine mistake on my behalf. Would they be likely to pickup on the fact that I requested a date change? what sort of penalties could I expect if they found this five years down the road. Should I just accept that this has been a mistake on my behalf and put it down to an expensive lesson?

Thanks for any advice.

Actually that's not strictly true. For most people the date of the dividend voucher will be the payment date which will then also be the tax point, but that's not always the case. It depends whether we're talking interim or final dividends.

Dividends are deemed received when they become payable to the shareholders. Interim dividends are payable on a date determined by the directors, however, under company law, the entitlement can be altered by the directors at any time, until actually paid. So the correct treatment, agreed with HM Revenue & Customs (HMRC), is to deem interim dividends as received only when they are actually paid; whereas a final dividend is payable on a date proposed by the directors, but then subsequently requires formal confirmation by the shareholders which cannot be rescinded, and so (after shareholder confirmation) the due date is the deemed date of payment, irrespective of when they are actually paid.

Some details from HMRC here: SAIM5040 - Dividends and other company distributions: company law

You may be specifically interested in this bit:

An interim dividend can be varied and rescinded at any time before payment and can therefore only be regarded as ‘due and payable’ when the date for payment arrives.

[Sockpuppet]

Agree with Kate. However "paid" can also (in my understanding of it) can also mean when you transfer it to the directors loan account. The money doesn't have to leave the company accounts.

[northernladuk]

Here is what to do...

Call it a daft tax for not knowing what the tax year is
pay it and remember a good lesson
get your accountant to change your company year from April to April so you don't have to think so much next time...

Next....

P.s. why do you keep your accountant if you are not going to do what they suggest and go ask a bunch of random strangers. The accountant has a vested interest in doing your accounts properly, we don't. Who's advice are you going to take?

[flexiblemouse]

Thanks for the constructive replies not sure how I did this wasn't like I didn't know the tax year runs from April to April. So looks like I'm going to have to put this down to experience and take the hit.

[Hex]

Thanks for the constructive replies not sure how I did this wasn't like I didn't know the tax year runs from April to April. So looks like I'm going to have to put this down to experience and take the hit.

Did you read Clare's response above? As long as your dividends were not declared as Final Dividends then you can treat them for tax in the year that they were paid. So you should be OK with one of your dividends (the one paid on 11th April) unless you had it minuted as a Final Dividend.

I would also consider shifting accountants if this were me. Your accountants sound very heavy handed and inflexible.

[flexiblemouse]

Did you read Clare's response above? As long as your dividends were not declared as Final Dividends then you can treat them for tax in the year that they were paid. So you should be OK with one of your dividends (the one paid on 11th April) unless you had it minuted as a Final Dividend.

I would also consider shifting accountants if this were me. Your accountants sound very heavy handed and inflexible.

Yes I read Clares response I asked my accountant about this his response was that it did not relate specifically to owner managed companies. He said they will change the dividend if I request it as long as I was happy to defend this to HMRC. I put my hands up to this mistake but I am surprised that the accountant never mention anything to me especially the second dividend as they raise all dividend paperwork for me and this was two days before the end of the tax year.