Reply to: Can I mix my salary with dividends?

[Sockpuppet]

I make it easy. I pay any money the company owes me into an "account" i.e. lend it back to the company straight away.

Then I take payments from this. Simple clear and keeps the books straight. Mostly my divs are round numbers, £5k £10k etc and they also come out as another payment. Sometimes I pay myself 4 months in one go plus expenses and take half of it. Then pay the rest out the next time I take a dividend payment.

[Joeman]

everyone always coming up with scare stories about being investigated, so who has then? a few pointers on dos and donts?

Exactly!! seems to be a lot of decisions made based on guess work, and fairy tales...

Accountants always take the safe option (which is why we pay them to keep us in check!!) but my point is that there seems to be no definitive evidence or documentation from HMRC that categorically states that combined Div/Salary/expenses payments, even when supported by correct paperwork are any more risky than individual payments.

In fact a bit of googling turned up this thread, where even the Accountants are in disagreement:

Dividend Payment procedure. Am I being pedantic ? | AccountingWEB

Common sense, (and the experts) would suggest that two payments is the safest option, but in the absence of any clear guidelines from HMRC, or documented cases where single payments have landed people in trouble, are we all just making a big assumption??
For the Taxman to say the single payment is all salary, he would need to disregard the accounting records, Div vouchers, meeting minutes, and the payslips, and if the taxman can do that, then why do we bother to do any paperwork in the first place??

[Sockpuppet]

I pay myself what i need for the month (and no more) in one payment then figure out what proportion of the payment is salary/expenses/divs later in the year to fit best with tax planning....I've never had a problem with this approach, but it does leads to some strange div figures!

Having been involved in investigations, I can tell you it's a lot quicker to handle them if you can show the bank statements and clearly match individual payments to wage summaries and dividend vouchers. If you can't, you then have to provide backup schedules to show how each payment relates to a voucher or payslip plus which expenses it included. Preparing a tax return for someone who has just paid random amounts and then expects you to reconcile it at year end against a wage summary and non-existent dividend vouchers is also no fun. If your accountant includes full investigations and your tax return at no extra charge then great. If they are going to bill you for the investigation/return on the basis of how much time and effort it takes them, it's going to cost you more.

It's a lot easier for you to get into a mess that way too, as you can't clearly look back and identify payments yourself.

The mortgage company would be unlikely to be purely looking at your bank statements and lending on the basis of what you've paid in (that doesn't prove what you earn, just what you pay in which could come from numerous sources unrelated to ongoing income). They would write to your accountant and request details of your company profits, dividends and wages.

You're not a permie though: you have to account for YourCo's transactions. What permies and their emplyers do is f*** all to do with this debate.

It's about risk management. If you have a PAYE inspection, and Hector sees single amounts of income appearing in your personal account, he will simply ignore your supporting paperwork and declare it all as salary and so liable to PAYE and NICs. If however you give him documentary evidence of a minuted dividend payment plus associated tax voucher and can point to a discrete matching payment in your own account that is clearly separate from your salary and expenses, he can't.

It's not much effort to do it properly. Not doing it properly can prove expensive. So do it properly. Understand?

I mix payments. Then again I account for stuff separably. I'm have nominal code in sage set up to show Sockpuppet Cash Owed etc. When I pay myself or pay some expenses or even a dividend I move the cash into this nominal code as separate transactions. When I need some money I then usually take round figures out of this code e.g. £5000, £10000 etc. So some money can sit in this code for a while and I appear on the accounts at year end as having cash owed to me.

However. I generally only declare dividends once a year so those go into that code as £10k and out as £10k etc. Expenses, wages are all rolled up and taken each quarter again as flat £5k etc payments.

This might be right, it might be wrong but I can show exactly what I owe to Hector and how many dividends i've taken. But I do only do this 4 times a year not 12 like some other people and with one div would be easier for me to show what is a no salary.

[d000hg]

Out of interest is there any practical difference between creating the dividend docs the day you take the money, and creating these back-dated at year-end in one go?

In case you forget

I put all the dividends as single rows in a simple spreadsheet so they are recorded... then write up the official documents later i.e. year-end.
I don't know if this is technically wrong or not though - to pay dividends before the voucher is completed, even if nobody can tell!

[gingerjedi]

I do separate transactions for my own benefit and for clarity, it takes me about 20 seconds longer.

I can't be arsed to read the entire thread but I'm willing to bet the op has spent more time asking the question, reading and replying rather than doing it the simple way 12 times over a year.

[John Crowe]

So looking at this another way then, has anyone been investigated that has been paying themselves Divs and Salary on same transaction? what was the outcome?

everyone always coming up with scare stories about being investigated, so who has then? a few pointers on dos and donts?

my accountant has been doing the div paperwork, I just put the amount in the online system and he does the rest

[Joeman]

They've worked because you haven't been investigated.

So looking at this another way then, has anyone been investigated that has been paying themselves Divs and Salary on same transaction? what was the outcome?

[malvolio]

ok all im saying is that with everythin equal, ie a demonstrable audit trail in an accountant supplied software package, accompanied by detailed payslips, printed and signed paperwork for dividends, scanned and hard copy receipts for every purchase etc etc and all other paperwork in order, is the fact that the payment was made in a single transaction rather than three transactions spaced a few seconds apart, really going to swing the case in the favour of the tax man?

That’s the question… you obviously believe it does and that’s fine, all I’m doing is trying to get a definitive answer.

When single payments have worked for many years for me, I wonder why you bother to do something that you have no hard evidence to support…

They've worked because you haven't been investigated. If you're never investigated you can do it whatever way you like. But I'm not going to answer questions on the basis that whatever it is won't be investigated by HMRC so who cares. And that wasn't what you asked originally anyway.

Also your software tool does not override HMRC's ability to apply the Ramsay principle and how you manually label the transaction on your PC is utterly irrelevant. To his eyes they are discrete payments with distinct taxation treatments, therefore should be treated separately. That's the reality, you do with it what you wish.

[Joeman]

Just occasionally you wonder why you bother...

ok all im saying is that with everythin equal, ie a demonstrable audit trail in an accountant supplied software package, accompanied by detailed payslips, printed and signed paperwork for dividends, scanned and hard copy receipts for every purchase etc etc and all other paperwork in order, is the fact that the payment was made in a single transaction rather than three transactions spaced a few seconds apart, really going to swing the case in the favour of the tax man?

That’s the question… you obviously believe it does and that’s fine, all I’m doing is trying to get a definitive answer.

When single payments have worked for many years for me, I wonder why you bother to do something that you have no hard evidence to support…

[malvolio]

thats some great info from a validated source.. thanks

I use a system called 'IRIS Open Books' to manage my LtdCo finances that allows me to upload my bank statements, then assign an explinations next to each transation.
Lets say i transfer 2k to my personal account, that shows as a single transaction on my LtdCo bank statement, but IRIS OpenBooks allows me to split that transaction into multiple payment types, so that could be
500 salary,
500 expense,
1000 dividens.

This is why ive only been making single combined payments, as IRIS software clearly details that a single transaction can have multiple reasons.
If its bad practice then maybe i should stop using this feature of the software?? but its handy for me as i can juggle the split between Expenses/Divs when i get round to adding up my expenses! Guess im just lazy...

Just occasionally you wonder why you bother...

[Joeman]

Having been involved in investigations, I can tell you it's a lot quicker to handle them if you can show the bank statements and clearly match individual payments to wage summaries and dividend vouchers. If you can't, you then have to provide backup schedules to show how each payment relates to a voucher or payslip plus which expenses it included. Preparing a tax return for someone who has just paid random amounts and then expects you to reconcile it at year end against a wage summary and non-existent dividend vouchers is also no fun. If your accountant includes full investigations and your tax return at no extra charge then great. If they are going to bill you for the investigation/return on the basis of how much time and effort it takes them, it's going to cost you more.

It's a lot easier for you to get into a mess that way too, as you can't clearly look back and identify payments yourself.

The mortgage company would be unlikely to be purely looking at your bank statements and lending on the basis of what you've paid in (that doesn't prove what you earn, just what you pay in which could come from numerous sources unrelated to ongoing income). They would write to your accountant and request details of your company profits, dividends and wages.

thats some great info from a validated source.. thanks

I use a system called 'IRIS Open Books' to manage my LtdCo finances that allows me to upload my bank statements, then assign an explinations next to each transation.
Lets say i transfer 2k to my personal account, that shows as a single transaction on my LtdCo bank statement, but IRIS OpenBooks allows me to split that transaction into multiple payment types, so that could be
500 salary,
500 expense,
1000 dividens.

This is why ive only been making single combined payments, as IRIS software clearly details that a single transaction can have multiple reasons.
If its bad practice then maybe i should stop using this feature of the software?? but its handy for me as i can juggle the split between Expenses/Divs when i get round to adding up my expenses! Guess im just lazy...

[malvolio]

not having a go, just looking for proof that one payment is riskier than multiple.

Well I can't quote precise case details, but I do know of people having arguments with a Hector about what a given payment represented and having significant amounts of non-taxable income disallowed, leading to expensive appeal procedings. Whether it's provable or not is not the point; blame my original accountancy training but all I'm saying is paying things with clearly identifiable transactions is a basis tenet of any auditable process since it eliminates ambiguity and de-sisks the whole process

[TheFaQQer]

Is this the one?

Contractor Accountant specialists UK | Accountancy Service for contractors | Interim Managers Accountancy Services UK | Take Home Pay Calculator UK.

No - it wasn't an accountant, it was a regular poster.

I wish I could remember who it was, it's been most useful. Having just looked at the NW one, I prefer the one I use - too much yellow

[northernladuk]

Having been involved in investigations, I can tell you it's a lot quicker to handle them if you can show the bank statements and clearly match individual payments to wage summaries and dividend vouchers. <and more stuff>

They way it was explained to me is that if can provide clear evidence of an aspect of your finances the investigator maynot be so eager to go in to minute detail and move on to the next issue. He is often looking for due diligence rather than lost pounds. Give him the idea you know what you are doing and he won't dig too deep. That's why I keep all my reciepts so if he questions mileage he gets a huge bag of them. If he wants to wade through and validate he can but banking he won't and move on. If he does it was worth the effort.

Prolly not true for every investigation but if it helps just once I think it is worth getting in to the habit.

I didn't think payments would make a difference though but what Clare makes sense to me so will splitting mine just to look whiter than white if nothing else.

[Joeman]

You're not a permie though: you have to account for YourCo's transactions. What permies and their emplyers do is f*** all to do with this debate.

It's about risk management. If you have a PAYE inspection, and Hector sees single amounts of income appearing in your personal account, he will simply ignore your supporting paperwork and declare it all as salary and so liable to PAYE and NICs.

Got any actual documented proof of this? or are we all just assuming this is what would happen??

If however you give him documentary evidence of a minuted dividend payment plus associated tax voucher and can point to a discrete matching payment in your own account that is clearly separate from your salary and expenses, he can't.

I'm not suggesting doing it without the supporting paperwork - of course you need all the vouchers etc to explain the figures, but once you have all the supporting paperwork, is there really anything stopping you summing it all up and paying in one payment?? do we have proof that this increases risk or are you just making that assumption??

Afterall, the director is meant to act with the best interest of the company, so if you had a bank account that charges per transaction, its in the interest of your company to make one payment not three.

not having a go, just looking for proof that one payment is riskier than multiple.