Reply to: Handling Dividends

[Demonwiz]

Thanks MrRobin and Gonzo, I appreciate your time and effort. Sorry for my late reply ... trying too hard to please too many Kids, Wife, client, HMRC etc

[Gonzo]

Hi Guys,
I'm new to "posting" on Contractor UK, so a quick Hello to all out there from me.
I have been contracting for a mere 18 months and until recently was with a well known composite. I went on my own as a Ltd back in April. I read these forums with interest as I am keen to glean as much help staying on the right side of HMRC.

I too pay myself (as advised by my accountant) a low ish wage and a top up by dividend. I wish to declare the dividends correctly especially post Arctic Systems case went through the courts.

My accountant simply said "type out some minutes of a meeting to recommend the dividend payment" How exactly do you go about declaring a dividend in reality.

I have read that you "hold a board meeting" declare a dividend and minute the meeting for future "reference".

Is there a format that has to be adhered to to satisfy HMRC? .

Once I have the format set up is should be a fairly straight forward task to repeat the exercise monthly, quarterly etc!
Any help advice would be greatly appreciated.

Thanks

Demonwiz

I don't think that there is a specific format that you need to follow. What is important is that it is actually done at the time. Going back and retrospectively creating them is what can get you into trouble.

Mine just say something along the lines of "A meeting of the Directors was held at xxx on yyy date. It was proposed and resolved to pay a dividend to shareheholders of the amounts shown below." Then list the net dividend, the tax credit and the gross dividend. Then list each shareholding and the amounts paid for each one.

All that's left to do then is make the payment (or payments if you have more than one shareholder).

I think that should just about cover it. My thinking (and I don't know whether I am right on this or not) is that you just want to have some evidence that the payments made are in fact dividends and not other sorts of payments that HMRC might be interested in, like salary.

[MrRobin]

My minutes say:

Minutes of the Board of Directors
Held at 1 High Street, Newtown, AZ1 1AB
On 30 July 2007
Present All Directors and the Company Secretary
The Chairman reported that the meeting had been called to consider a dividend for the year ending 31 March 2008
It was proposed that an interim dividend be declared as below:
Rate per share £12.00
Total Dividend Payable £1,200.00

After due and careful consideration had been given to the proposal, the meeting considered that the proposal was in the best interests of the company and it was resolved that the above dividend be distributed to the members.

There being no other business, the meeting was closed.

You can get templates from the wbe.. do a search or go to one of the websites of the popular accountants we talk about here (Nixon Williams or SJD)

Hope that helps.

[Demonwiz]

Handling Dividends

Why would you need shareholder meeting minutes for a dividend? Given its the Directors choice to declare a dividend wouldn't it be a directors meeting you would want minutes for??


Also, heres a strange one.......received an email from an 'accounting firm' who informed me that if your company only has 1 sole director then you don't nneed to draw up any directors meeting minutes.....hmmm doesn't sound safe to me.

Hi Guys,
I'm new to "posting" on Contractor UK, so a quick Hello to all out there from me.
I have been contracting for a mere 18 months and until recently was with a well known composite. I went on my own as a Ltd back in April. I read these forums with interest as I am keen to glean as much help staying on the right side of HMRC.

I too pay myself (as advised by my accountant) a low ish wage and a top up by dividend. I wish to declare the dividends correctly especially post Arctic Systems case went through the courts.

My accountant simply said "type out some minutes of a meeting to recommend the dividend payment" How exactly do you go about declaring a dividend in reality.

I have read that you "hold a board meeting" declare a dividend and minute the meeting for future "reference".

Is there a format that has to be adhered to to satisfy HMRC? .

Once I have the format set up is should be a fairly straight forward task to repeat the exercise monthly, quarterly etc!
Any help advice would be greatly appreciated.

Thanks

Demonwiz

[JKnz]

Agree Bluebird but i think we need to be careful with any advice given on here too.

I went back to the so called 'accounting firm' who gave me that info and they fed me some more rubbish along the lines that since I was the only director then why would I need to keep directors minutes and to whom would I need to show them To this I replied....'HM Revenue and Customs may be interested' ....yet to hear back

[Bluebird]

Why would you need shareholder meeting minutes for a dividend? Given its the Directors choice to declare a dividend wouldn't it be a directors meeting you would want minutes for??


Also, heres a strange one.......received an email from an 'accounting firm' who informed me that if your company only has 1 sole director then you don't nneed to draw up any directors meeting minutes.....hmmm doesn't sound safe to me.

Yep, you could be right.

I'm just trying ot be helpful, the point being is that you can't just go off and do these things without a paper trail - many new to running ltds may not get that sort of advice from their "accountants" who a few weeks ago were MSCPs.

[JKnz]

Don't forget whether you pay your dividends Weekly, Monthly or Annually, they have to backed up by :

1. Sharholder Meeting Minutes
2. Dividend Tax Vouchers

These MAY be produced by your accountants, but you need to check.

Why would you need shareholder meeting minutes for a dividend? Given its the Directors choice to declare a dividend wouldn't it be a directors meeting you would want minutes for??


Also, heres a strange one.......received an email from an 'accounting firm' who informed me that if your company only has 1 sole director then you don't nneed to draw up any directors meeting minutes.....hmmm doesn't sound safe to me.

[Bluebird]

Don't forget whether you pay your dividends Weekly, Monthly or Annually, they have to backed up by :

1. Sharholder Meeting Minutes
2. Dividend Tax Vouchers

These MAY be produced by your accountants, but you need to check.

[2uk]

oh please...abbey is free... I suspect lots are. Change banks!

Here's the website

http://www.anbusiness.com/

I've used them for 5 years+...never paid a penny for anything. Got great interest on the reserve account, online works fine, and no stuff ups.

Thanks , I will have it in mind. I am going to doublecheck everything with HSBC.

[max]

They offer 18 months free banking and I bit.

oh please...abbey is free... I suspect lots are. Change banks!

Here's the website

http://www.anbusiness.com/

I've used them for 5 years+...never paid a penny for anything. Got great interest on the reserve account, online works fine, and no stuff ups.

[2uk]

Have you considered changing banks? No need to stay with HSBC!

You're throwing money away!

They offer 18 months free banking and I bit.

[JKnz]

I'm not saying it's right or wrong.
Can you imagine the sceanario. Why did you draw monthly dividends ?
Because I couldn't afford to live off the minimum wage I was paying myself ...

Or how about because shareholders would rather see excess funds distributed out of the company if they are not going to be used by the company for further investment providing a profitable return.....

[minstrel]

It's suppose to be a distribution of profits so those contractors trading in their first year realistically shouldn't be declaring dividends.

Just because the first year annual accounts haven't been drawn up doesn't mean the company is not in profit during the first year and able to distribute dividends.

Surely whenever your company's YTD balance sheet shows the company is in profit the Directors can legally choose to make a dividend distribution?

[partimer]

monthly divs

Thanks for your response Gonzo

Yep fully aware of the incomings / outgoings situation.

I'm not taking the full amount of distributable earnings either just paying a single dividend each month to top up my weekly salary and address those monthly personal bills eg rent, mortgages etc. Probably only paying out around 50% of what is available which means for periods I am not working and not having incomings I should have sufficent profits to distribute. Hope that all made sense.

I only asked as I have friends who were paying out divs weekly and fortnightly but are now looking at moving to quarterly or half yearly payments to minimise this 'risk' but I'm not sure I could survive of the minimum salary amounts.

Cheers

I'm not saying it's right or wrong.
You've hit upon the problem with dividends.
It's suppose to be a distribution of profits so those contractors trading in their first year realistically shouldn't be declaring dividends.

You are trying to be a proper business (or give the illusion).
Now if you're unfortunate enough to be in a dog fight with Hector and in the courts. Can you imagine the sceanario. Why did you draw monthly dividends ?
Because I couldn't afford to live off the minimum wage I was paying myself ...

Aren't you treating your divs like a regular wage for an employee ... ?
You see, it's the perception. You're doing nothing wrong but the current government is treating tax avoidance and tax evasion, the same. There in lies the problem.

The only route is "don't get in a battle with Hector to begin with".
It's how the individual contractor feels about risk.

[max]

There's a limit on how many monthly transfers out of the reserve account though.

What limit?