Dividends/directors loan and year end?

[luckyknight]

This is my first year contracting, I created my business on 4th April 2012 and I started actually working the first week of May 2012. I have paid myself a monthly salary of £624 per month with the intention of paying the remaining as a dividend.

I was introduced to the director's loan facility by another contractor and I used that to borrow £30933.16 (in total - made up of about 5 - 6 smaller loans over the course of the year). I wasn't aware of the interest over £5000 (I should have done more research on this!).

1) By what date does this need to be cleared? 31st March 2013 or 5th April 2013? I'm a little confused by HMRC website, it says year end but in other bits corporation tax year end (which is 31st March) I repaid £4500 over the directors loan on the 31st March (but it did not go through until the 2nd April) due to bank holidays/sunday etc. Is that an issue?

2) Can I pay myself a dividend on 5th April 2013 or did it have to happen on the 31st March? In which case does this affect any interest/NIC/tax on the directors loan?

On a couple of other separate notes:

3) on a few occasions I have logged into my internet banking to transfer my salary on the last day of the month, but because it was the weekend the transfer didn't go through until 2 - 3 days later. This means the salary shows up on the following month statement e.g. 1st June. On my book keeping, do I enter the date that I tried to pay the amount (therefore my monthly sheets show £624 per month salary) or do I enter the date the transfer happened (in that case some months may show 624 * 2 salary) - or does it not matter?

4) On my book keeping (using sjd spreadsheet) - the final sheet is march and doesn't take into account the first week of April - should I add the final transactions e.g. dividend to the march sheet, or should I just start a 2013 - 2014 one. The final week (first week of April) has my transactions such as a overdue expenses claim and repaying some directors loan.

Slightly confused! I've been off for a couple of weeks due to an operation, hoped to get this sorted.. My fault for leaving it so late!!

[captainham]

If you're using the SJD spreadsheet then it sounds like you need to use SJD themselves, or indeed any of the other accountants that post on here regularly.

Not being funny but it sounds like you're getting in a right muddle here, and an accountant will save you both hassle and money in the long run.

This level of questioning and confusion is going to get you into some bother at some stage.

[Notascooby]

Where's NLUK?

OK forget calling it a loan - what you've taken is a dividend in all reality - it's only a loan if you've not actually got the retained profits to cover it? Either get some proper book keeping software and skills pronto or (and more likely) contact an accountant.

sounds like you've taken a salary without actually having a payroll set-up too so that salary is probably just more dividend. before you get in the tulip, contact an accountant and pay to have this done properly.

[luckyknight]

Where's NLUK?

OK forget calling it a loan - what you've taken is a dividend in all reality - it's only a loan if you've not actually got the retained profits to cover it? Either get some proper book keeping software and skills pronto or (and more likely) contact an accountant.

sounds like you've taken a salary without actually having a payroll set-up too so that salary is probably just more dividend. before you get in the tulip, contact an accountant and pay to have this done properly.

I've paid myself a net salary each month but I've always done that separate from a loan. I have registered on HMRC and completed my P45, my P35 is due soon (may sometime).

I've always had the funds to take out the loan but at some points of the year not to take out the dividend as I believe I would need to leave 20% in there to cover CT.

I have downloaded QuickBooks but It's not the easiest software to understand!! I will take a look and possibly look at getting an accountant!!

[luckyknight]

If you're using the SJD spreadsheet then it sounds like you need to use SJD themselves

This level of questioning and confusion is going to get you into some bother at some stage.

Yup!! I was using SJD spreadsheet as I think I only need to record cash flow (invoices sent, paid, bank deposits etc) to meet my legal requirements I believe. Still new to this, probably do need some help!

[northernladuk]

And posters take the piss out of me for saying 'Have you spoken to your accountant first?' I think this is evidence why this is essential...

I think being slightly confused isn't your biggest problem. The rules on Company Loans changed in the last week with tax relief being changed for the worst, and I don't see any mention of the S455 mentioned either but to be fair I didn't get past the first few paragraphs.
Have a look here http://www.legislation.gov.uk/ukpga/2010/4/section/455 and take note of the line that says 'There is due from the company, as if it were an amount of corporation tax chargeable on the company for the accounting period in which the loan or advance is made, an amount equal to 25% of the amount of the loan or advance.'

...
Stop asking a load of strangers about minute details of your finances and go speak to the guy you pay to do this for you.... your accountant. You could be flagging yourself to HMRC let alone getting your company in potentially illegal situations from which you can't come back and ruin your contracting career. I also find it a bit hard to believe you can loan yourself 30K from profits of the company in the first year of contracting so I smell a potential problem with CT..

If you can't work out option 4 for yourself you really shouldn't be messing about without advice... that is just stupid.

You are legally reponsible for the finances of your company so think it is time you stepped up and started taking your responsibilities seriously.

[luckyknight]

Have a look here Corporation Tax Act 2010 and take note of the line that says 'There is due from the company, as if it were an amount of corporation tax chargeable on the company for the accounting period in which the loan or advance is made, an amount equal to 25% of the amount of the loan or advance.'.

I was under the impression CT at 25% was only added if the loan was not repaid within 9 months of accounts end? At least I hope so, otherwise.. I'm going to cry

As stated here:

https://www.gov.uk/directors-loans

[northernladuk]

I was under the impression CT at 25% was only added if the loan was not repaid within 9 months of accounts end? At least I hope so, otherwise.. I'm going to cry

As stated here:

https://www.gov.uk/directors-loans

I CBA to go into it in detail, it's your problem but I would be interested in seeing how you intend to pay back a 30k loan in 9 months as well as pay yourself aroun 27k in pay/dividends, not forgetting putting CT/VAT to one side yadda yadda.. particulary if a bit of bench time looms unexpectedly in that time.

[luckyknight]

I CBA to go into it in detail, it's your problem but I would be interested in seeing how you intend to pay back a 30k loan in 9 months as well as pay yourself aroun 27k in pay/dividends, not forgetting putting CT/VAT to one side yadda yadda.. particulary if a bit of bench time looms unexpectedly in that time.

Well I was planning on clearing the loan using a dividend (no money has to move, it just clears the account).

If for example:

I had a loan of £10,000
my current balance in the account was: 2,000

To declare a dividend of £10,000 I would need 20% set aside for CT so I would need £2000 to remain in the account

So a dividend payment of £10,000 to clean the loan off to 0
Leaving £2,000 in the account for CT. Or would I need £12,000 in there to consider a dividend, but no money actually moves.

[Martin at NixonWilliams]

This is my first year contracting, I created my business on 4th April 2012 and I started actually working the first week of May 2012. I have paid myself a monthly salary of £624 per month with the intention of paying the remaining as a dividend.

I was introduced to the director's loan facility by another contractor and I used that to borrow £30933.16 (in total - made up of about 5 - 6 smaller loans over the course of the year). I wasn't aware of the interest over £5000 (I should have done more research on this!).

1) By what date does this need to be cleared? 31st March 2013 or 5th April 2013? I'm a little confused by HMRC website, it says year end but in other bits corporation tax year end (which is 31st March) I repaid £4500 over the directors loan on the 31st March (but it did not go through until the 2nd April) due to bank holidays/sunday etc. Is that an issue?

2) Can I pay myself a dividend on 5th April 2013 or did it have to happen on the 31st March? In which case does this affect any interest/NIC/tax on the directors loan?

On a couple of other separate notes:

3) on a few occasions I have logged into my internet banking to transfer my salary on the last day of the month, but because it was the weekend the transfer didn't go through until 2 - 3 days later. This means the salary shows up on the following month statement e.g. 1st June. On my book keeping, do I enter the date that I tried to pay the amount (therefore my monthly sheets show £624 per month salary) or do I enter the date the transfer happened (in that case some months may show 624 * 2 salary) - or does it not matter?

4) On my book keeping (using sjd spreadsheet) - the final sheet is march and doesn't take into account the first week of April - should I add the final transactions e.g. dividend to the march sheet, or should I just start a 2013 - 2014 one. The final week (first week of April) has my transactions such as a overdue expenses claim and repaying some directors loan.

Slightly confused! I've been off for a couple of weeks due to an operation, hoped to get this sorted.. My fault for leaving it so late!!

Hi luckyknight,

In response to your questions:

1) Based on Q4, I assume your company's yearend is 31st March 2013. If this is the case the loan will need to be repaid by no later than 31st December 2013 (9m from the yearend). Interest or BIK on the loan will be assessed on the tax year (6th April - 5th April).

2) You can pay yourself a dividend on any day you like, providing you have the reserves available. You should consider the date of the dividend for tax purposes of course, though 31st March & 5th April would fall in the same tax year.

3) I assume you are referring to the salary expense and not the posting of the actual bank payment itself. The salary should be included in the accounts if it relates to that period, regardless of the date it leaves the bank account.

4) I think you are confusing your company's accounting period with the tax year. It does not matter whether there are payments dated shortly after the yearend, this is perfectly normal. Any payments owed to you, such as the expenses you mention, will show in the accounts as creditors until paid.

I echo the views of the other posters - You are approaching a critical period for you and your company and there are various deadlines etc. that you ought to be aware of. I would strongly advise speaking with your accountant, asking them to outline any forthcoming deadlines applicable to you and your company.

I hope this helps.

Martin