Paying dividends and leaving enough for the tax man

[malvolio]

You pay divis out of available profit. You are also legally bound as a Director of a limited Company to trade solvently and prudently, which means ensuring you retain enough clear funds to cover any known liabilities - and that includes upcoming CT. But Philip Green paid himself a £1.2bn bonus against a less than £1bn profit in 2008 using agreed profits guaranteed to be available in 2009. (he gave it all to his wife, incidentally, and paid no tax on it, but that's another story)

So yes you can juggle things around on occasion, but you have to be fully aware of the risks involved. Get it wrong and HMRC will bite, hard.

[THEPUMA]

A final dividend can be declared but not paid. An interim dividend must be paid. But transferring the amount to your director's current account counts as being paid. So you could simply declare the dividend without paying it if you word the documentation correctly. Fire me a PM and I'll email you a template.

Or you could just pay it and use the outstanding invoices to pay the CT. That's what i would do.

Cheers

PUMA

[PAH]

Would that work? I thought I'd actually have to receive this money in my personal account before 5th April in order for it to fall under my 2009/10 tax year?

From memory of doing something similar a few years ago, the dividend is declared on your self-assessment for the same tax year it was declared by the company, so the actual transferring of money has no relevance as it's treated as already having been taken, and any tax paid accordingly.

[Olly]

yep it's how I thought it worked either and my accountants gave me no clues otherwise when I was in a similar predicament.

Basically though, declaring the dividend is a paper shuffling exercise then you immediately loan the money to your Ltd.

Can't imagine hector is happy about it as presumably your Ltd has no need of the loan but it's been mentioned on here a few times, even by the accountants.

[PAH]

as long as that tax liability is covered by my outstanding invoices

What happens if for some reason the invoices don't get paid (say the agency goes bust due to directors withdrawing all the money ) and you can't therefore pay the tax?

Is it a case of the company becomes insolvent so can be closed and that's the end of the tax liability? This assumes HMRC understand the course of events and don't see it as tax evasion.

[ittony]

You could always declare a dividend but not actually take it. That way you'd still have enough money in the bank to pay the tax, and the company would simply owe you the value of the dividend (which you could take at a later date).

Would that work? I thought I'd actually have to receive this money in my personal account before 5th April in order for it to fall under my 2009/10 tax year? Certainly that the way I've always operated when totting up dividend income from other stocks and shares for my self assessment...

[Olly]

hmmmmmmmm
I borrowed a lot from my co for about 4 months (30K) but for the other 8 I was in credit a bit...let's say an average of 3K at any one time

Should I have offset (on equal interest terms) the two when calculating interest owed to Ltd?

I paid about 400 quid interest from what I remember. Ok I should be able to get 79% of that back at some time...but still

[Clare@InTouch]

can you charge your Ltd interest too?

Yes - but then you'd have to declare the interest as extra income on your tax return. Not really worth it - save CT but pay personally.

[malvolio]

can you charge your Ltd interest too?

Yes.

Next...

[Olly]

You could always declare a dividend but not actually take it. That way you'd still have enough money in the bank to pay the tax, and the company would simply owe you the value of the dividend (which you could take at a later date).

can you charge your Ltd interest too?

[Clare@InTouch]

I just want to lose as little as possible of this year's (personal) basic rate tax allowance.

Business was a bit slow last year but is looking a bit busier ahead. I'd hate to be paying top rate next year on money I could have had at basic rate this year.

You could always declare a dividend but not actually take it. That way you'd still have enough money in the bank to pay the tax, and the company would simply owe you the value of the dividend (which you could take at a later date).

[ittony]

I would guess as long as you have the cash at the end of the year then it's ok but that is just a guess. The question that does spring to mind though is do you need the extra money in the dividends so badly? Surely you are just robbing from Peter to pay Paul here and leaving yourself open to a cock up with your last invoice or something that will leave you in a bad position?

I just want to lose as little as possible of this year's (personal) basic rate tax allowance.

Business was a bit slow last year but is looking a bit busier ahead. I'd hate to be paying top rate next year on money I could have had at basic rate this year.

[northernladuk]

I would guess as long as you have the cash at the end of the year then it's ok but that is just a guess. The question that does spring to mind though is do you need the extra money in the dividends so badly? Surely you are just robbing from Peter to pay Paul here and leaving yourself open to a cock up with your last invoice or something that will leave you in a bad position?

[ittony]

Is it all right for my company to pay a dividend at a rate which would leave not enough cash to cover my current corporation tax liability as long as that tax liability is covered by my outstanding invoices which I have no reason to doubt will be paid well before the tax is payable?

Thanks,
Tony.