Retrospectively claim dividends as salary - how far back?

[Maslins]

I don't think there's anything to stop you registering the company as an employer retrospectively. Issue you may have is hefty late filing penalties, as you'd then presumably be submitting a whole load of RTI submissions significantly late. You might find they dwarf the tax savings from including the salary.

Sounds like one of the suggestions you've received is just to backdate a little bit (ie to Apr 2016). By doing that you could potentially get some relief with no/negligible penalties.

Afraid I don't think there's an easy fix now. Doesn't help you, but this is why it's worth at least speaking to an accountant at the outset, even if you don't formally sign up with one. Most won't mind giving you some basic pointers for free to set you off in the right direction. Or of course plenty of this kind of advice is fairly readily available on the internet if you know what you're looking for.

[James131]

Were you registered for PAYE back then? Are you now?

You could probably call the dividends from then a director's loan and then deduct that from what you pay yourself in this tax year (after PAYE). A little dubious for sure, and you'll have still lost last year's tax allowance.

No, I wasn't and I'm still not - does that limit my options?

[VectraMan]

Were you registered for PAYE back then? Are you now?

You could probably call the dividends from then a director's loan and then deduct that from what you pay yourself in this tax year (after PAYE). A little dubious for sure, and you'll have still lost last year's tax allowance.

[northernladuk]

Doesn't help answer your question but when you have try running your figures though a brolly comparison calculator like this.

[James131]

HisCo has paid corp tax (20%) on the profits in order to pay a dividend - if it was salary (up to 11k each) neither hisco nor he would pay any tax

Exactly. I'm just looking for advice on the best way to reverse that poor decision as much as possible. I've been advised that I can claim all dividends this side of 01 March 2016 as salary - but what about the previous financial year - of which I'm about to file my end of year accounts (and pay tax) for.

[kolata]

HisCo has paid corp tax (20%) on the profits in order to pay a dividend - if it was salary (up to 11k each) neither hisco nor he would pay any tax

Yes I got it now. Ask your accountant.

[pr1]

Am I missing the point here. What taxes? On what?
Your divi is for your personal tax year until 6 april 2016, right?
If so, and if your only income is 7500 from divi you don't owe any tax.

HisCo has paid corp tax (20%) on the profits in order to pay a dividend - if it was salary (up to 11k each) neither hisco nor he would pay any tax

[James131]

Am I missing the point here. What taxes? On what?
Your divi is for your personal tax year until 6 april 2016, right?
If so, and if your only income is 7500 from divi you don't owe any tax.

I'm looking for a way to (legally) avoid the cooperation tax. Salaries would have been classified as expenses for the ltd, but dividends are paid from profits so the company will have to pay 20% on that £15,000 - right?

Sorry, I'm sure this is frustrating for you, but I appreciate your help.

[VectraMan]

Look for a bloke in a blue police box. He may be able to help you.

When you say "should" you mean you've realised you could have avoided some tax. There's nothing wrong with what you've done; it was just dumb.

[James131]

Why are you running a limited for those numbers? There was a rule of thumb before the dividend tax that you were better of through a brolly under £30k income. No chances of you getting it so badly wrong through one of them either.

That's interesting, I hadn't heard that before but things are already looking up - so I think .ltd will make sense in the long run.

[kolata]

Sorry, I probably didn't make myself clear. The dividends we made were from profits the company had made. Even with the dividends paid out there is more money in the company accounts than when we started, it's just that we should have paid that money out in a salary rather than dividends. I'm just looking to reverse the mistake if possible.

Am I missing the point here. What taxes? On what?
Your divi is for your personal tax year until 6 april 2016, right?
If so, and if your only income is 7500 from divi you don't owe any tax.

[James131]

We could start with you illegally paying out dividends well in excess of your profits

Sorry, I probably didn't make myself clear. The dividends we made were from profits the company had made. Even with the dividends paid out there is more money in the company accounts than when we started, it's just that we should have paid that money out in a salary rather than dividends. I'm just looking to reverse the mistake if possible.

[northernladuk]

Why are you running a limited for those numbers? There was a rule of thumb before the dividend tax that you were better of through a brolly under £30k income. No chances of you getting it so badly wrong through one of them either.

[malvolio]

We could start with you illegally paying out dividends well in excess of your profits, but let's not go there...

It is a repairable situation before year end, but you need professional advice. Get yourself an accountant and let them help you out. there's a thread somewhere on the best ones to use.

And then find time to learn how to operate a company properly. There's plenty of resources around to get you started, including over there on the right

[James131]

Hi everyone,

I'm new to running a limited company and I have made the mistake of paying myself and the other 50% shareholder solely in dividends - £15,000 since our incorporation on 03/02/2015. I should note that we're a new start-up and neither director has any other sources of income.

I'm now discovering that even though the business earns very little, (we've only received £7,500 each, up to year end 29 Feb 2016), that we have to pay quite a lot of tax as dividends are from profits subject to cooperation tax. Better would have been to have a salary it seems, since we have no other incomes (please correct me if I'm wrong).

What I'd like to know is, is there any way we can turn these dividends into salary by paying the appropriate NIC's on them? I've been told I can do it with dividends paid after 01 March 2016 up until now. But the real stinger for us is the amount due to be paid soon (3rd Nov) due to the 15,000 paid out in dividends from 03/02/2015 (incorporation) to year end 29 Feb 2016.

Any advice would be much appreciated. It's a big hit for us to pay tax that could have been avoided when our incomes are currently so low.

Thanks,
J