Reply to: Directors loan account

Not the taxman but:

From The Guardian:

After being charged £20 for a £10 overdraft, 30 year old Michael Howard of Leeds changed his name by deed poll to “Yorkshire Bank Plc are Fascist Bastards”.

The Bank has now asked him to close his account and Mr Bastards has asked them to repay the 69p balance by cheque, make out in his new name.

Re: Paperwork

Never heard it was illegal but what isn't in this poxy country except actual crime???

The loan at any time can be calculated as
loan at start year + payments to director to date - amounts due to director to date.

Where last is usually salary, dividend or refund of expenses.

Possible to calculate continuously with suitable spreadsheet, or from other software I would imagine. Then pay divi before 5k is breeched. There's a spreadsheet on my link under account button that you can adapt to your own use.

Also a sample divi voucher. There's no law at all that says they should not have "All taxmen are bastards" on them.

Paperwork

for dividends

- you don't need to hold a full meeting each time, as directors are usually entitled to declare dividends, but check your Articles

- the dividends declared by the directors are ratified when the accounts are signed. Before that they're just provisional

- a minute of directors meeting need only be signed by the directors - funnily enough

- you should do some sort of calculation to make sure your not paying out dividends from profits you don't have. I would suggest you take a percentage of what you've got in in cash.

- do a dividend voucher for each shareholder. There's a £60 a pop fine if you don't.

Re: White Paper

Yes, it was the ACT stuff that was confusing me as exaclty when tax should be paid. I guess thats what you get for taking advise off the guy from the pub........

So, simple. Pay a dividend on a quaterly basis, making sure I fill in the right paper work. Then pay the corporation tax at the end of the company year in the normal way.

Sounds easy. This required paperwork is just company minutes signed by the director (me) and the compnay secratary (family member) I take it? Is there a standard wording to use for these?

Buy the way, I really do appreciate your help with this. Thanks much!

White Paper

I believe it is. As is the lifeftime cap above which there are all sorts of (severe) penalties.

None of this applies to civil service pensions afaik.

[rant] The government wonders about people providing for themselves, but with means testing everything, raids on pension funds via tax changes, minimum income guarantees it's no wonder.

I read a report the other day that suggested to stay clear of state benefits (other than the state pension) during retirement you would need (today) a penson fund of 180,000. The other side of that coin is that of that 180,000 if you do have it, is effectively taxed at about 60%. Somewhat depressingingly the first 40k is effectively taxed at 100%.
[/rant]

Re: FWIW2

I would have thought, in my innocence, that paying yourself a small salary would be quite likely to reduce the interest of Hector.

FWIW2

ASB - I seem to remember seeing something about severing the links between earnings and contributions in the white paper about the pensions industry. Is this still on the cards?

Pension

FWIW one of the reasons for paying largish salarys was that it was the only way to get the appropriate pensionable income in order to allow company pension payments. (The point being that personal contributions are 'tax free' but company contributions are 'tax and NI free').

However, with a stakeholder the company can pay to £3600 of contributions irrespective of salary levels. Whether or not contributing to a pension is a sensible thing is a matter so some debate given the current rules.

Dividends

I always thought (for some reason) that dividends were only paid at the end of the company year. It seems not. So if I pay myself a dividend say on a quarterly basis, when does the tax (both corporation and my own income tax) become due? do I just declare it on my persoanl end of year tax return in the same way I would for income from shares in say Tesco or something?

- you can pay yourself a dividend daily as long as you get the paperwork right

- there is no payment of company tax associated with the payment of a dividend. ACT was abolished in 1999 for those of you who remember

- any of your dividend income that's subject to tax at the higher rate - the associated tax will become payable on the January 31st following the tax year in which the dividend was paid. Any dividend falling within the basic rate band is essentially tax-free. Your Tax return should have details of the dividends you've taken.

Have you contemplated paying yourself, um, what do they call it these days, it's on the tip of my tongue? oh, yes, a salary?

zeitghost - taking a salary means paying national insurance. Unless you're profits are more than £300k then you should always pay a dividend instead of a bonus as it avoids the national insurance (this ignores pension contributions that you may want to pay based on a salary).

Re: Fair Comments

Have you contemplated paying yourself, um, what do they call it these days, it's on the tip of my tongue? oh, yes, a salary?

Re: Fair Comments

Wow, thanks for the replies.

So I guess to sum up, I should use the 5k limit to keep me "topped up" between dividend payements?

I always thought (for some reason) that dividends were only paid at the end of the company year. It seems not. So if I pay myself a dividend say on a quarterly basis, when does the tax (both corporation and my own income tax) become due? do I just declare it on my persoanl end of year tax return in the same way I would for income from shares in say Tesco or something?

Life was simpler under IR 35.....

Fair Comments

All fair comments, but this becomes circular.

The original point I made was that - despite the criminal breach of S342 - it was unlikely to have criminal consequences. Not that it couldn't.

Decisions Decisions

All decisions have consequences - some unforseen

If you don't take a loan of more than £5k at any time then there can never be any consequences - foreseen or unforeseen!

If after taking a loan ... one declares a dividend that one cannot pay without redeeming the loan then that is at best foolish anyway.

Well yeah, but I would venture to say that the situation I described is quite common and what you've suggested isn't. A dividend can be declared without breaching the realised reserves rules despite what you say because the loan is a debtor and its just a question of reclassifying an asset on the balance sheet.

What ifs

So an unexpected event makes a prior decision a bad one. All decisions have consequences - some unforseen. Yes, it is important that people become aware of the potential consequences.

If after taking a loan (irrespective of whether it is over 5k or not) one declares a dividend that one cannot pay without redeeming the loan then that is at best foolish anyway.

It is also probably in contravention of other parts of the CA because the retained profit would not have existed to pay it.

You do raise an interesting point about NCIS though. Where the boundary lies is unclear. To be on the safe side I think all advisors should report all transactions. After all that meeting room I hired might have been with the local drug dealer to sort out my importation of another 100ks of coke.

If this were to happen then hopefully NCIS would get completely swamped under the weight and we could get back to some sensible regulations.

s342 CA 1985 and Money Laundering Regs

What I did say was that in practice it needs a wounded shareholder to file a complaint.

What if the other shareholder is your partner and you break up with them still owing them dividends and you can't pay them when they depart because you've taken all the company monies as a loan? I'm sure that situation must be fairly common and its worth making people aware that they may get a criminal record because of it.

I wonder what impact the ML regs will have on this? Its seems to me that any professional advisor should tell NCIS about an overdrawn loan account. What do you think ABS?