Reply to: When can I take divs - Invoice date or payment date

[ASB]

Always wondered if theres any wisdom in only paying dividends once a quarter (like proper companies do) rather than once a month? Surely once a month makes it look like a salary.

Or dont HMRC care?

How would HMRC know whether you pay quarterly, annually or even twice a day ? They wouldn't until they are already investigating.

Though a lot of folk do take the view that paying once a month is a greater risk. Just ensure they are correctly minuted and paperwork is properly in order. Personally I pad them at fairly random frequencies - i.e. when I personally needed the cash.

[psychocandy]

Always wondered if theres any wisdom in only paying dividends once a quarter (like proper companies do) rather than once a month? Surely once a month makes it look like a salary.

Or dont HMRC care?

[Wanderer]

What happens if the agency goes out of business and doesn't pay your third invoice even though they have received money from the client? How are you going to pay your Corp Tax then? I always make sure that I have the money in my bank account and that I have subtracted the tax due before I take a dividend.

I agree that the best strategy is to take the dividend out of paid invoices but there is nothing to stop you raising an invoice and paying a dividend at the same time according to the PCG website.

If an invoice is never paid, it gets written off as a bad debt and this amount gets subtracted from your company profit so it all balances out. If that unpaid invoice was the last one your company ever issued then you are probably going to have to pay the dividend back or risk being accused of trading while insolvent.

[lje]

Situation
Based upon this since all invoices have been sent and I have enough money in the company account to pay out the full 3 x month div amount - Can I pay myself the div`s at the end of the 3 months rather then wait for the full payments

What happens if the agency goes out of business and doesn't pay your third invoice even though they have received money from the client? How are you going to pay your Corp Tax then? I always make sure that I have the money in my bank account and that I have subtracted the tax due before I take a dividend.

[northernladuk]

Situation

pay div`s every 1/4

• All invoices have been sent to agency : 3 months worth
• Invoices been paid say 2 months so far due to payment details - 30 days behind
• The amount of money in the company account is enough to pay the 3 months divs in full without needing the all the invoices to be paid

The "Missing/ Yet to be paid " payments will pay for the subsequent Corp tax`s for the same period - all VAT have already been transferred to another holding account

Based upon this since all invoices have been sent and I have enough money in the company account to pay out the full 3 x month div amount - Can I pay myself the div`s at the end of the 3 months rather then wait for the full payments

If you were to pay these Div's do you have enough in the bank to cover everything owed to the tax man? Corp, VAT etc? If not then no you cannot, it is not profit. If you have their money, your divi's and money to spare in there then yes.

Oh yeah and don't forget a warchest. Do you intend to give yourself every possible penny so have no warchest and also paying top dollar tax on the amount you withdraw?

[contractor55]

Situation

pay div`s every 1/4

• All invoices have been sent to agency : 3 months worth
• Invoices been paid say 2 months so far due to payment details - 30 days behind
• The amount of money in the company account is enough to pay the 3 months divs in full without needing the all the invoices to be paid

The "Missing/ Yet to be paid " payments will pay for the subsequent Corp tax`s for the same period - all VAT have already been transferred to another holding account

Based upon this since all invoices have been sent and I have enough money in the company account to pay out the full 3 x month div amount - Can I pay myself the div`s at the end of the 3 months rather then wait for the full payments

[northernladuk]

Absolutely - if the cash isn't in the bank don't spend it

Even if the cash isn't in the bank it doesn't mean you can spend it. Some of it belongs to HMRC.

[contractor55]

many thanks to all

[Taxless]

Normally, the payment of a dividend is governed by the company's Articles of Association but in the absence of anything unusual in those, it is in accordance with the Companies (Tables A to F) Regulations.
A final dividend must be recommended by the directors and approved by the company members in a general meeting, although a lot of small companies no longer use AGM’s and so the approval of a final dividend is by elective resolution.
The directors may pay interim dividends if they are justified by the level of the company's distributable profit.
These may include retained profits of an earlier accounting period. Whenever a dividend is declared, the company's financial records must be adequate to demonstrate that there are available profits to cover the dividend.
The ICAEW Guidance Note on determining realised profits for distribution indicates that when a dividend is declared, the directors should be able to take a reasonable judgement as to profits, losses, assets and liabilities, provisions, share capital and reserves. The note goes on to say that the use of reliable management accounts satisfy this requirement.
I accept that in most one-man companies management accounts are probably an alien concept, but I would stress that it is not enough to merely look at the cash in the bank. If for example, during the year you were able to anticipate profits of £100k, you might declare an interim dividend of £80k but a later expense (not anticipated when the dividend was declared) arises, of £40k, so at the year end the profits available to distribute were only £60k, then although it appears that the interim dividend of £80k is now illegal, it will still have been validly declared at the time, but if the expense could have been anticipated at the time the dividend was declared then it would have been illegal from the outset.
You do need to try and establish the underlying profitability of the business before declaring a dividend and remember that in the event of an HMRC enquiry they are likely to ask to see all of the paperwork associated with dividend payments and may well ask how you go about establishing whether the level of dividends paid during the year were valid or not.

Distributable profit.

Not just as easy as it sounds and best to get input from your accountant. If you want some fun and want to go through the process yourself, here is the Technical Guide issued by the joint UK accountancy bodies , http://www.icas.org.uk/site/cms/down...le_profits.pdf :

[zedAccounts]

My understanding is that dividends should only be drawn against profits realised, i.e. those invoices paid off.

ZED.

[LisaContractorUmbrella]

Absolutely - if the cash isn't in the bank don't spend it

[Scrag Meister]

As I understand it it's irrelevant if the invoices have been paid yet, but being the cautious type and having had to sue for payments in the past when I used to have several small direct clients I only draw dividends from cleared funds.

WTMS, cleared funds.

[TykeMerc]

As I understand it it's irrelevant if the invoices have been paid yet, but being the cautious type and having had to sue for payments in the past when I used to have several small direct clients I only draw dividends from cleared funds.

[backrubber]

The following two applications enable you to calculate corporation tax and the size of dividends that can be taken:

Earnings Tracker

and

MyBookkeepingManager

[Scrag Meister]

Depends if you have any cash in the bank at invoice date.

Personally I pay divs approx 3-6 monthly, depending on contracts, personal cashflow and total income for the year so far.