Retained earnings/Dividends timing prior to tax year end

[VFV]

Quick check on my understanding of the timing of revenue recognition and dividends.

Firstly, I can include the amount of an unpaid invoice in my retained earnings from the time it is sent to my agent- so although my March invoice won't be paid until late in April the associated income can be distributed prior to the end of the tax year right?

And secondly, dividends are taxed on the year the are actually paid, so for a dividend to hit the 2012-13 personal tax year it will have to be paid out before April 5?

thanks

[tractor]

...

Quick check on my understanding of the timing of revenue recognition and dividends.

Firstly, I can include the amount of an unpaid invoice in my retained earnings from the time it is sent to my agent- so although my March invoice won't be paid until late in April the associated income can be distributed prior to the end of the tax year right?

And secondly, dividends are taxed on the year the are actually paid, so for a dividend to hit the 2012-13 personal tax year it will have to be paid out before April 5?

thanks

It has to be awarded before the end of the tax year which means on or before April 5th despite what NLUK announced when he gave his budget last year

And it doesn't have to be paid, just awarded and minuted and accounted for in your books.

Confirmation from a real accountant would be appreciated and will no doubt be along in a minute

[Jessica@WhiteFieldTax]

** checks certificate ** yes, I'm real.

Tractor is correct, as is OP.

Recognise revenue based in invoice date to agent.

For the dividend to sit in 12-13 it must be declared pre 5 April. If it isn't physically paid, then you need an accounting entry like DR Dividend CR dividends due, although that depends on what records you keep (full ledger v simple cash book) and year end date.

NB on revenue recognition, you should also recognise fair value of work done and not invoiced.

[psychocandy]

I've been told its better to actually pay within the year as well if you can.

[Project Monkey]

Quick check on my understanding of the timing of revenue recognition and dividends.

Firstly, I can include the amount of an unpaid invoice in my retained earnings from the time it is sent to my agent- so although my March invoice won't be paid until late in April the associated income can be distributed prior to the end of the tax year right?

And secondly, dividends are taxed on the year the are actually paid, so for a dividend to hit the 2012-13 personal tax year it will have to be paid out before April 5?

thanks

Correct. Revenue is recognised from the point you issue the invoice, not the time its paid. Some would even argue that revenue can be recognised from the point the work is done (i.e. accrued revenue), but not much point in doing that for the likes of us.

[VectraMan]

Correct. Revenue is recognised from the point you issue the invoice, not the time its paid. Some would even argue that revenue can be recognised from the point the work is done (i.e. accrued revenue), but not much point in doing that for the likes of us.

Yes, as Jessica said, in theory you should include the value of the work you've done whether invoiced for or not. So if you're invoicing weekly, and your year end falls in the middle of the week, you should include those couple of days worth in the earlier year's accounts and CT calculation even though you hadn't invoiced yet.

I don't think anyone bothers though, at least not for a few days. If it was a couple of month's work on a project where you were invoicing at the end, then you certainly would.

Of course paying a dividend on the basis of an invoice that hasn't been paid yet is slightly risky.

[Craig at Nixon Williams]

Be careful with the dividend, the date that dividends are taxed depends on how the dividend is raised - if the dividend is voted for by the director's of the company then it is taxed in the year that it is actually paid, if the shareholders pass a resolution to declare the dividend then it is taxed on the date that the resolution is passed (the resolution creates an immediately enforcable debt to the company).

Link to HMRC's guidance on this here: SAIM5040 - Dividends and other company distributions: company law

Hope this helps!
Craig

[psychocandy]

Be careful with the dividend, the date that dividends are taxed depends on how the dividend is raised - if the dividend is voted for by the director's of the company then it is taxed in the year that it is actually paid, if the shareholders pass a resolution to declare the dividend then it is taxed on the date that the resolution is passed (the resolution creates an immediately enforcable debt to the company).

Link to HMRC's guidance on this here: SAIM5040 - Dividends and other company distributions: company law

Hope this helps!
Craig

So who normally votes? Isn't it the shareholders?

[Craig at Nixon Williams]

So who normally votes? Isn't it the shareholders?

The easiest way to describe this is by thinking of a larger company where the directors and shareholders are not the same people. Dividends paid during a company's financial year (interim dividends) are voted by the directors of the company at a board meeting based on the anticipated profits for the year and then paid out to the shareholders, the shareholders will not vote on this. A final dividend is then proposed (again by the directors) after the company's results for the full year are known, the shareholders then approve or reject this at the company's AGM and a resolution is passed.

Craig

[Wanderer]

I'm a little confused about the difference between an interim and final dividend (presume that this is a close company where the shareholders are the director and a spouse).

Does a final dividend actually have to be declared and paid or can the company just declare interim dividends?