Paying out dividends after posting a loss

[Spoiler]

Looking for some enlightenment and education ...

Out Ltd is looking to start paying out some cash to 2 shareholders, so initially I thought we'd just go the usual dividend route.

However, at the end of our financial year 1 (just finished) it looks like we will have posted a loss. Now in FY2 we will have some cash in the business that we'll want to pay ourselves with come October. I think this means the pre tax profit will need to be high enough to cover the corporation tax, the dividend paid and the loss from the previous year. It seems like we'll need to predict that there will be enough profit to pay dividends this year.

Perhaps for now it may just be easier to pay out money as standard salary and not bother with dividends?

[Clare@InTouch]

In order to pay a legal dividend the company should have enough profit, and that's retained profit - so the loss brought forward has to be covered by current year profits. Your accountant should be able to provide management accounts so you check the current position.

You can of course pay salary, but that's obviously not so tax efficient and it will eat into your retained earnings meaning longer until you can pay a dividend.

[Spoiler]

In order to pay a legal dividend the company should have enough profit, and that's retained profit - so the loss brought forward has to be covered by current year profits. Your accountant should be able to provide management accounts so you check the current position.

Thanks, I think this was the bit I hadn't planned for - so essentially we need to make up the loss first (so we're back to zero), then make some more profit out of which we can pay dividends (tucking away the relevant corporation tax bit). Is that right ?

[malvolio]

Thanks, I think this was the bit I hadn't planned for - so essentially we need to make up the loss first (so we're back to zero), then make some more profit out of which we can pay dividends (tucking away the relevant corporation tax bit). Is that right ?

If you don't know that dividends are paid out of net profits, I think perhaps you should be doing some reading. How much else don't you know that is quite important like, just as a random example, what is "net profit"?

[Spoiler]

If you don't know that dividends are paid out of net profits, I think perhaps you should be doing some reading. How much else don't you know that is quite important like, just as a random example, what is "net profit"?

Meh.

[northernladuk]

Looking for some enlightenment and education ...

Out Ltd is looking to start paying out some cash to 2 shareholders, so initially I thought we'd just go the usual dividend route.

However, at the end of our financial year 1 (just finished) it looks like we will have posted a loss.

How does a contractor post a loss? I presume you are not a standard contractor bum on seat setup? Have you been paying yourselves dividends last year as well? Doesn't sound like a very good situation at all that. I would also be concerned you only knew you were posting a loss AFTER you year end.

Now in FY2 we will have some cash in the business that we'll want to pay ourselves with come October. I think this means the pre tax profit will need to be high enough to cover the corporation tax, the dividend paid and the loss from the previous year.

You only think you will?

Perhaps for now it may just be easier to pay out money as standard salary and not bother with dividends?

I would say that is the best route for you to go just to avoid any mess you will get yourself into. Your financial affairs, understanding of them and planning of them sound like a right mess there.

[MarillionFan]

Meh.

Take some out as a directors loan. You know is makes sense.

[malvolio]

Meh.

Very professional. Good to know for future reference you can take straight advice. But hey, it's your court case...

[Clare@InTouch]

Take some out as a directors loan. You know is makes sense.

That's a good point - if it's short term then a loan can be fine, you just have to be careful of the tax implications if it goes over £5,000 or past your year end. And of course you have to pay it back.

[northernladuk]

That's a good point - if it's short term then a loan can be fine, you just have to be careful of the tax implications if it goes over £5,000 or past your year end. And of course you have to pay it back.

I thought MF's post had <sarcasm></sarcasm> tags on it.....