Reply to: Accountant advice - Vary dividend payment

[eek]

I'm not trying to get in to an argument here but your tax point seems to have changed to a commercial one. As I've said many times, I don't advise contractors. I also know little about bounce back loans. However, companies of all sizes borrow money and pay dividends. Whether that is a sensible thing to do is something that I would expect the directors to think about.

The argument changed to a commercial one ages ago - the entire reason why I made the post you quoted was because the case is a great example on why you should wait until the money is in your company account before using it to take a dividend payment or a director's loan.

Our companies really aren't complex organizations, it's best to keep things as simple as possible.

[Iliketax]

But the company didn't have sufficient funds to pay the dividends - the company had been borrowing money from City Invoices until City invoices removed their borrowing facilities and asked for the loans to be repaid immediately (yes I missed the reason why City Invoices asked for the money back but still they asked for the money to be repaid so bankrupting the firm).

My point here was they were borrowing money and paying dividends from that borrowed money based on invoices sent, not payments received so the dividends were being paid from money that wasn't 100% the company's money which means there is a risk that the money may be recalled.

So the directors were doing everything we've told people not to do with a Bounce Back Loan see https://www.contractoruk.com/forums/...ml#post2808594. It's fine to borrow money to pay salary, fine to use it to make pension payments, fine to use it to buy equipment but it shouldn't be used to pay dividends or make a loan to a director.

I'm not trying to get in to an argument here but your tax point seems to have changed to a commercial one. As I've said many times, I don't advise contractors. I also know little about bounce back loans. However, companies of all sizes borrow money and pay dividends. Whether that is a sensible thing to do is something that I would expect the directors to think about.

[eek]

I know your post was not aimed at me but after reading it, I went back and re-read the case as what you wrote suprised me - my memory is not normally that bad!



No offence, but what do you mean by "correct title"? Just saying Jones v Revenue & Customs is ambiguous (are you talking about the one involving Richard or William or Heather or Julie or Timothy or someone else?). If you want to cite a case, its best to be clear what case you are talking about (there are plenty of descriptions on the web about using neutral sitations, etc).



No, that's not right. The dividends were paid because the company had sufficient profits and the directors decided to pay a dividend.



No, the end client did not go bankrupt. The company that paid the dividend went into liquidation, not a client of the company.



The above tale seems to miss the point. The point to me is:

1. The company paid a legal dividend. That is not disputed.

2. HMRC accepted "that Mr and Mrs Jones were entitled to withdraw income from the Company in the most tax efficient way". HMRC were clear that when the dividend was paid it was not earnings. HMRC did not argue that PAYE/NIC should be paid when the dividend was paid.

3. Someone (not Mr and Mrs Jones) worried that a liquidator might say that the dividend would have to be repaid and suggested the dividend be retrospectively converted to a bonus. This seems quite a strange thing to say and the tribunal said that such a retrospective change does not change the tax treatment of the individual dividend. That's not really surprising.



No, that is not right. The tribunal said:





There is no evidence that the accounts were wrong when the dividends were declared.

There is nothing in the decision that says that "by attaching to them to monthly income things went wrong". Things went "wrong" because someone said it was a good idea to retrospectively convert a legal dividend to employment income.



I'm not clear what you think the simple mistake is. My reading of the case is that the simple mistake was delaying processing a credit notes over Christmas when an invoicing factor is involved (although there may well have been other issues).

But the company didn't have sufficient funds to pay the dividends - the company had been borrowing money from City Invoices until City invoices removed their borrowing facilities and asked for the loans to be repaid immediately (yes I missed the reason why City Invoices asked for the money back but still they asked for the money to be repaid so bankrupting the firm).

My point here was they were borrowing money and paying dividends from that borrowed money based on invoices sent, not payments received so the dividends were being paid from money that wasn't 100% the company's money which means there is a risk that the money may be recalled.

So the directors were doing everything we've told people not to do with a Bounce Back Loan see https://www.contractoruk.com/forums/...ml#post2808594. It's fine to borrow money to pay salary, fine to use it to make pension payments, fine to use it to buy equipment but it shouldn't be used to pay dividends or make a loan to a director.

[Iliketax]

Why didnt HMRC appeal that particular decision? Allsorts of reasons, they may have thought the evidence presented to the FTT in this case was too strong against them or, their evidence not strong enough to win a UTT decision which does set precendence.

I haven't asked them but I'd suggest that it was because (1) the evidence was that the dividend was legal and was not employment income when paid, and (2) HMRC might find it put themselves in a difficult position to arhue that someone could retrospectively say that income could retrospectively be changed to something else just by saying so (e.g. no, its not a bonus but a loan).

[Iliketax]

Which says you didn't even read the case you referenced - as the best advice would be to ensure that the invoice is actually paid before paying dividends - AND ensuring the paperwork is complete

I know your post was not aimed at me but after reading it, I went back and re-read the case as what you wrote suprised me - my memory is not normally that bad!

In Jones v Revenue & Customs (note the correct title)

No offence, but what do you mean by "correct title"? Just saying Jones v Revenue & Customs is ambiguous (are you talking about the one involving Richard or William or Heather or Julie or Timothy or someone else?). If you want to cite a case, its best to be clear what case you are talking about (there are plenty of descriptions on the web about using neutral sitations, etc).

the only reason there was an issue is that the dividends were paid from factored invoices rather than income received,

No, that's not right. The dividends were paid because the company had sufficient profits and the directors decided to pay a dividend.

the end client then went bankrupt

No, the end client did not go bankrupt. The company that paid the dividend went into liquidation, not a client of the company.

And given the fact some people may be going direct in the future its worth emphasising the above tale.

The above tale seems to miss the point. The point to me is:

1. The company paid a legal dividend. That is not disputed.

2. HMRC accepted "that Mr and Mrs Jones were entitled to withdraw income from the Company in the most tax efficient way". HMRC were clear that when the dividend was paid it was not earnings. HMRC did not argue that PAYE/NIC should be paid when the dividend was paid.

3. Someone (not Mr and Mrs Jones) worried that a liquidator might say that the dividend would have to be repaid and suggested the dividend be retrospectively converted to a bonus. This seems quite a strange thing to say and the tribunal said that such a retrospective change does not change the tax treatment of the individual dividend. That's not really surprising.

Jones continued to take dividend payments on a monthly basis even though the profits weren't there.

No, that is not right. The tribunal said:

We are satisfied that on a monthly basis Mr and Mrs Jones considered the management accounts, and the current and future work levels in order to set the level of interim dividends. The interim dividends were posted to a dividend ledger each month by Mr Jones. That ledger was part of the Sage system which was checked and reconciled by Clark Nicklin on their monthly visits. Clark Nicklin were clearly aware that Mr and Mrs Jones were receiving interim dividends. ... Mrs Jones as Company Secretary produced interim dividend vouchers on a monthly basis.

Whether that was because the accounts weren't accurate (Freeagents aren't either as it allows dividends to be take as soon as the invoice is raised) or simply because dividends were part of the monthly income is irrelevant the fact is that by attaching to them to monthly income things went wrong.

There is no evidence that the accounts were wrong when the dividends were declared.

There is nothing in the decision that says that "by attaching to them to monthly income things went wrong". Things went "wrong" because someone said it was a good idea to retrospectively convert a legal dividend to employment income.

It is far better for most people to treat dividends as a separate item away from monthly income to avoid making simple mistakes like the one in that case.

I'm not clear what you think the simple mistake is. My reading of the case is that the simple mistake was delaying processing a credit notes over Christmas when an invoicing factor is involved (although there may well have been other issues).

[TheDogsNads]

It doesn't really matter how HMRC would like to treat it. Where is the evidence that they've done so, successfully?

If a dividend is properly declared, it's a valid dividend.

If your business has a consistent turnover each month, does that make it start to look like salary? If your business has a consistent profit each month and you decide to take a dividend consistent with that profit, does it start to look like salary?

This is all baseless nonsense.

The only sound advice that I would offer to n00bs who might be persuaded by some of the evidence-free assertions in this thread is that, if you are going to take a regular dividend payment, then make sure your paperwork is all in order every time and avoid lumping together the payment with a salary payment, i.e., keep it separate.

You destroy your counter argument with your last para. And as I mentioned in the subsequent post, FTT decisions do not set precedent. The decision of that FTT where the appellants won doesnt mean the next FTT would find similar.

Why didnt HMRC appeal that particular decision? Allsorts of reasons, they may have thought the evidence presented to the FTT in this case was too strong against them or, their evidence not strong enough to win a UTT decision which does set precendence.

That's the reality of the situation.

[eek]

It doesn't really matter how HMRC would like to treat it. Where is the evidence that they've done so, successfully?

If a dividend is properly declared, it's a valid dividend.

If your business has a consistent turnover each month, does that make it start to look like salary? If your business has a consistent profit each month and you decide to take a dividend consistent with that profit, does it start to look like salary?

This is all baseless nonsense.

The only sound advice that I would offer to n00bs who might be persuaded by some of the evidence-free assertions in this thread is that, if you are going to take a regular dividend payment, then make sure your paperwork is all in order every time and avoid lumping together the payment with a salary payment, i.e., keep it separate.

Which says you didn't even read the case you referenced - as the best advice would be to ensure that the invoice is actually paid before paying dividends - AND ensuring the paperwork is complete

In Jones v Revenue & Customs (note the correct title) the only reason there was an issue is that the dividends were paid from factored invoices rather than income received, the end client then went bankrupt and the factoring company asked for the money back.

And given the fact some people may be going direct in the future its worth emphasising the above tale.

But actually that case rather proves the point of the OP's accountant. Jones continued to take dividend payments on a monthly basis even though the profits weren't there. Whether that was because the accounts weren't accurate (Freeagents aren't either as it allows dividends to be take as soon as the invoice is raised) or simply because dividends were part of the monthly income is irrelevant the fact is that by attaching to them to monthly income things went wrong.

It is far better for most people to treat dividends as a separate item away from monthly income to avoid making simple mistakes like the one in that case.

[jamesbrown]

Paying yourself a monthly dividend isnt a good strategy.

Although there's nothing in statute that says dividends can \ cannot be paid at so and so intervals, if you take them monthly it starts to looks like wages \ salary.

If it walks like a duck and quacks like a duck to HMRC, guess how HMRC will treat it?

It doesn't really matter how HMRC would like to treat it. Where is the evidence that they've done so, successfully?

If a dividend is properly declared, it's a valid dividend.

If your business has a consistent turnover each month, does that make it start to look like salary? If your business has a consistent profit each month and you decide to take a dividend consistent with that profit, does it start to look like salary?

This is all baseless nonsense.

The only sound advice that I would offer to n00bs who might be persuaded by some of the evidence-free assertions in this thread is that, if you are going to take a regular dividend payment, then make sure your paperwork is all in order every time and avoid lumping together the payment with a salary payment, i.e., keep it separate.

[jamesbrown]

Um I think you are the person who is confused here.

You said



and I asked for the case law relation for that palpable nonsensewhich you haven't done - as the case law you have found is for the opposite where an accountant is trying to fix an illegal dividend - what you haven't shown is any case law regarding regular dividends being treated as income by HMRC as there isn't any. Which was the entire reason why I asked you to show me the case law YOU claimed existed in that post above.

You then started laughing at me as you asked me to find the case you I asked you for.

The simple fact is that you stated there is case law regarding something and I called you up on the fact that there wasn't any.


When I was checking that no case law exists before I asked for it I also found (and so posted) that accountingweb thread as it shows the exact same arguments we are having here. I then edited that post to point out that the final argument is no longer so relevant now accounting profit can be seen in real time in Freeagent.

But this current argument is completely around

1) you stating there is case law on something,
2) me asking for you to find that actual case law,
3) you providing something completely different and then asking me to find the case law you said existed and I asked you to find.

No, you're confused about the relevance of the case, as you were from the beginning.

Also, the idea that I cannot ask you for a similar level of evidence to support your position is extremely childish. Where is the case law that supports your interpretation of regular/consistent dividend payments being reclassified as employment income? I've asked you several times and you've provided nothing, not even something whose relevance we can argue about.

[TheDogsNads]

Useful summary here, btw:

Lawfully voted dividends incapable of being reclassified as earnings - RossMartin.co.uk

There may be other, better, cases. I see Iliketax posted earlier and probably has better knowledge of the case law.

https://www.contractoruk.com/forums/...ml#post2846334

Look forward to hearing about your cases to the contrary, eek...

FTT decisions do not set precedent.

[TheDogsNads]

Paying yourself a monthly dividend isnt a good strategy.

Although there's nothing in statute that says dividends can \ cannot be paid at so and so intervals, if you take them monthly it starts to looks like wages \ salary.

If it walks like a duck and quacks like a duck to HMRC, guess how HMRC will treat it?

[eek]

Absolutely, that is what we are talking about. If the paperwork is correct and there are sufficient distributable profits, then they are lawful dividends, regardless of amount/frequency.

Where is your case law to the contrary?

And the OP's accountants viewpoint is that it's likely the paperwork may not be adequate if you are always taking dividends at the same time as your monthly pay.

Now if the OP is using Freeagent it really won't be a problem as the paperwork is automatically generated as you declare and take the dividend but it is probably wiser to change it just so that you don't accidently take short cuts when doing the monthly payment or end up down the line taking a dividend payment that cannot be justified.

And separating processes out is a good way of ensuring no shortcuts can occur which result in things being missed.

[eek]

You can keep editing your post as much as you want, it won't make it any more coherent.

Um I think you are the person who is confused here.

You said

"if it has the same consistency as employment income, then it must be income from employment". It's palpable nonsense, as evidenced by case law.

and I asked for the case law relation for that palpable nonsensewhich you haven't done - as the case law you have found is for the opposite where an accountant is trying to fix an illegal dividend - what you haven't shown is any case law regarding regular dividends being treated as income by HMRC as there isn't any. Which was the entire reason why I asked you to show me the case law YOU claimed existed in that post above.

You then started laughing at me as you asked me to find the case you I asked you for.

The simple fact is that you stated there is case law regarding something and I called you up on the fact that there wasn't any.


When I was checking that no case law exists before I asked for it I also found (and so posted) that accountingweb thread as it shows the exact same arguments we are having here. I then edited that post to point out that the final argument is no longer so relevant now accounting profit can be seen in real time in Freeagent.

But this current argument is completely around

1) you stating there is case law on something,
2) me asking for you to find that actual case law,
3) you providing something completely different and then asking me to find the case law you said existed and I asked you to find.

[jamesbrown]

Useful summary here, btw:

Lawfully voted dividends incapable of being reclassified as earnings - RossMartin.co.uk

There may be other, better, cases. I see Iliketax posted earlier and probably has better knowledge of the case law.

https://www.contractoruk.com/forums/...ml#post2846334

Look forward to hearing about your cases to the contrary, eek...

[jamesbrown]

That's to do with dividend declaration and paperwork which isn't what we are talking about.

And The request was for you to provide case law to confirm your argument which I see you agree doesn't exist.

You can keep editing your post as much as you want, it won't make it any more coherent.