Corp Tax and Outstanding Director's Loan

[youwhut]

Thanks to everyone for the help here. I will declare the dividend which will cancel out the Director's loan and therefore tidy everything up nicely.

[PhilAtBFCA]

Directors Loan Account and Dividend

youwhut

Dividends come from Retained Profits - so to "declare" a dividend you need the profit.

But Cash Flow ( paying your CT ) is different. When you declare a dividend it does not have to be paid, it just gets accounted for as money owing to you, to be paid at some point when the company has the money.

In your case, it sounds as if you have already had the money, in other words you "owe" the company this money. To pay it off you are raising a dividend to cover this amount owed.

So its an accounting transaction, rather than a cash payment.

Not paying dividends when you have not got the profits to do so is not actually illegal, as in a criminal sense. It is however "Ultra Vires" i.e. you do not have the power to raise a dividend that is not from profits. In a practical sense what this means is that if you do this HMRC will seek to tax you not as receiving dividends but as something else, probably PAYE.


Hope that helps

Phil

[xoggoth]

Tend to agree with last. Have never found HMRC too anal about how things are done as long as they get the right amount of tax and on time. If that happens they are hardly going to examine the details of ins and outs to discover what the company had at any time.

[Gonzo]

Hi, amateur question being fired here.

End of year accounts are being done by my accountant. There is a Director's Loan of £2050 outstanding (oops) which he says I will be paying interest on (refundable later) if it is not paid back today. He suggests paying a dividend to pay back the loan. No problem there. Anyway, he says only pay this dividend if the company has sufficient undistributed profit taking into account all its assets and liabilities for this to be legal. If I pay this dividend then I will be temporarily eating into the Corp Tax, but I am not too worried as there are outstanding invoices.

What should I do here? If I perform this illegal transaction will someone lock me up and throw away the key?

Ta.

I don't think it would be illegal because you have raised invoices from which you can cover the dividend, it doesn't matter that they have not been paid yet.

As usual, I am not an accountant, I am sure one will be along in a minute, etc etc

EDIT - if you can't pay the corporation tax when it is due THEN you have a problem, but you can make a call on whether that is likely or not.

[Weltchy]

Someone else jump in here if Im barking up the wrong tree, however, you've taken out £2050 from the company to pay for "stuff". You would pay yourself a dividend, and then repay the loan amount back to the company. However, I'm sure you can write off the loan which would have the same effect.

I'm probably wrong, just waiting for an accountant to jump in here!!!

[youwhut]

Okay why would you do that? Yes I am being noddy.

[Weltchy]

Write off the loan and pay the outstanding CT on it

[youwhut]

Hi, amateur question being fired here.

End of year accounts are being done by my accountant. There is a Director's Loan of £2050 outstanding (oops) which he says I will be paying interest on (refundable later) if it is not paid back today. He suggests paying a dividend to pay back the loan. No problem there. Anyway, he says only pay this dividend if the company has sufficient undistributed profit taking into account all its assets and liabilities for this to be legal. If I pay this dividend then I will be temporarily eating into the Corp Tax, but I am not too worried as there are outstanding invoices.

What should I do here? If I perform this illegal transaction will someone lock me up and throw away the key?

Ta.