Originally posted by d000hg
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Reply to: Interim Dividends v Director Withdrawals
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Previously on "Interim Dividends v Director Withdrawals"
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Originally posted by northernladuk View PostWhy bugger about with monthly dividends of 3k each? Why not divided yourself the full years allowance in April and stick it in a high interest account?
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Originally posted by northernladuk View PostWhy bugger about with monthly dividends of 3k each? Why not divided yourself the full years allowance in April and stick it in a high interest account?Last edited by eek; 12 January 2015, 18:42.
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Originally posted by JRCT View PostAssuming, for the purposes of this question, that you always stay within respective limits and thresholds and that your ltd is always in a healthy position to pay all dividends and taxes accordingly:
Do you specifically, and purposely, match up interim dividends with the actual director withdrawals that you make?
Let's say you declare a dividend of £3k each month. Do you take a corresponding withdrawal of exactly £3k, or does it end up getting aggregated with other payment activity (you pay expenses personally, you're paid a portion of salary etc) which means your actual director withdrawals might be £1k one week, then £500, then another £2k etc, etc.
I'm not worried about breaching tax thresholds or my £10k directors loan limit or anything like that - the online accounting software ensures that's not going to happen. It's more about accounting practise.
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Originally posted by TheCyclingProgrammer View PostMore FUD.
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Originally posted by jamesbrown View PostI think the pertinent question is this: given the simplicity of making separate payments and the secondary benefit that it makes your bank transactions simpler to follow and aggregate, why would you not do this? I agree with Forbes Young. Why give HMRC a reason to dig deeper, even if everything is strictly legal? Also, I think it's good to mentally separate these two things in your head. A dividend payment is a reward for profitability, it is not a salary in any sense. You can call this pedantic, but I think it's important. In my view, if you start to adopt a questionable practice/mindset in some areas, it will creep into other areas too. As I said, YMMV, and it's not something I'd lose sleep over.
For the same reasons, I trust the software to be able to unravel any complications fairly easily if I have a need to look back or if HMRC did come knocking.
Part of being a contractor is the freedom and lifestyle and part of that, surely, is being able to take the money as and when (allowing for the obvious, of course) and not alloting it to a strict "salary today, dividend tomorrow" regime.
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Originally posted by jamesbrown View PostI think the pertinent question is this: given the simplicity of making separate payments and the secondary benefit that it makes your bank transactions simpler to follow and aggregate, why would you not do this?
Why give HMRC a reason to dig deeper, even if everything is strictly legal?
Also, I think it's good to mentally separate these two things in your head. A dividend payment is a reward for profitability, it is not a salary in any sense. You can call this pedantic, but I think it's important.
In my view, if you start to adopt a questionable practice/mindset in some areas, it will creep into other areas too.
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Originally posted by TheCyclingProgrammer View PostBut how can legal dividends with the right paperwork be in anyway construed as salary, just because its paid at the same time as the salary (which has its own separate documentation)? Just because "HMRC says so"? They say a lot of things...
Still seems like scaremongering to me. Have HMRC ever successfully argued that a dividend payment was actually a salary, where both payroll and appropriate dividend paperwork were in place?
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Originally posted by TheFaQQer View Post<pedant>The paperwork needs to be appropriate and the dividend needs to be legal . Buck v HMRC and Donovan & McLaren v HMRC both had the appropriate paperwork but the dividend wasn't</pedant>
I'm not sure how those settlements legislation cases are particularly relevant; they are certainly an exceptional cases concerning the use of dividend waivers but in neither were the dividends actually found to considered as *salary* payments, rather that the waivers were treated as a settlement.
Has there ever been a case of a straightforward, single shareholder company with sufficient profits and all other paperwork and requirements for a legal dividend in place to have been found that their dividend payments were actually salary payments?Last edited by TheCyclingProgrammer; 12 January 2015, 15:54.
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Originally posted by TheCyclingProgrammer View PostStill seems like scaremongering to me. Have HMRC ever successfully argued that a dividend payment was actually a salary, where both payroll and appropriate dividend paperwork were in place?
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Originally posted by Forbes Young View PostIt does matter to HMRC - they hate to see dividends and salary mixed up - its like a red rag to a bull. Bear in mind that dividends are returns on investment (ie on the shares you hold in the company); they are not glorified salary/employment income.
Still seems like scaremongering to me. Have HMRC ever successfully argued that a dividend payment was actually a salary, where both payroll and appropriate dividend paperwork were in place?
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Originally posted by jmo21 View PostSo long as it all tallies up it shouldn't matter, but I split it up to keep things simpler from an accounting point of view.
Makes it easier for me to check things, and presumably for my accountant as well.
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I always keep them separate.
I have three payments set up from the bank account - salary, expenses, dividend for each employee and shareholder. Salary is on a standing order, expenses are done ad-hoc once I've processed a month, and dividend is used whenever I take a dividend. If that results in three separate payments on the same day, then so be it - I like to see exactly what is what.
(Actually, I have a fourth payment type of directors loan just in case)
For me, it doesn't really make much difference - I take a dividend round about April 10th, and another one round about March 31st to take any remaining up to the next threshold. Then the money sits in my 123 account earning me 3% interest for the year, or it gets invested somewhere else. Monthly dividends just seems like a pain in the bum to me.
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Originally posted by jamesbrown View PostIn my view, it's just "common sense" to keep them separate. If HMRC want to make the case that dividends are being paid as disguised salary, it's going to make their job easier if you apparently view dividends as salary.
However, for something that is simple to implement and also makes it simpler to look back through your bank transactions and understand and aggregate the various classes of debits, keeping the payments separate is just good practice in my mind. YMMV.
Equally, I could just credit the salary and dividends directly to my DLA if I wanted to. This would be enough for the dividend to be deemed as paid. I could then make whatever payments I wanted to from my DLA - payments that might not match up with the original salary or dividend payments whatsoever. So long as these payments are clearly shown in your books as payments from the DLA it should all tally up just fine.
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Originally posted by jmo21 View PostSo long as it all tallies up it shouldn't matter, but I split it up to keep things simpler from an accounting point of view.
My own personal schedule is:
* Salary - paid monthly
* Dividends - paid quarterly
* Expenses - ad-hoc. Expenses are recorded in detail in a spreadsheet and entered into FreeAgent in batches (e.g. July travel expenses) and I make payments whenever I get round to it (FreeAgent keeps a running total of what I'm owed).
I'm not entirely happy with my expenses system as I always get behind on scanning and recording my receipts but it just about works.Last edited by TheCyclingProgrammer; 12 January 2015, 15:33.
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