Paper only dividend or Higher Tax band? Paid myself too much in last tax year

[Malcolm Buggeridge]

If you have it in an account doing nothing, then you could repay it to the company if your aim is not to exceed the 40% tax bracket.

Alan

Alan

As Greg says, this shouldn't be a problem if the amount due is < £1000. And all that I have to fork out from my own pocket is the £875. Which is preferable to deducting £3500 from this years allowance.

I think I'm clear now - just wanted to be sure before I tell my accountant I've found the paperwork for a £3500 divi that I didn't tell him about!

[Greg@CapitalCity]

What I'm worried about is this payment on account nonsense. I had to do this a couple of years ago & it really messed with my cashflow.

Just to add to this, if your total tax bill is less than £1,000, you will avoid the "payment on account nonsense".

[Nixon Williams]

So this is the better route then as I just have to fork out the £875 out of my own pocket whereas if I declare the director's loan, I eventually have to pay back the £875 from my own pocket or declare paper only divi for £3500 and take £3500 less divi this year. Seems a no brainer unless I'm missing something.

The £875 would be paid to HMRC as part of your tax return submission etc.

If you have spent the £3500 then yes I guess you will need to take it on the chin and pay the extra tax. If you have it in an account doing nothing, then you could repay it to the company if your aim is not to exceed the 40% tax bracket.

Alan

Alan

[Malcolm Buggeridge]

The extra tax due would be 25% of the dividend, so the tax would be £875, not £1400!

Alan

So this is the better route then as I just have to fork out the £875 out of my own pocket whereas if I declare the director's loan, I eventually have to pay back the £875 from my own pocket or declare paper only divi for £3500 and take £3500 less divi this year. Seems a no brainer unless I'm missing something.

[Nixon Williams]

2) looks like the least expensive option as I will just have to pay 40% on £3500. What I'm worried about is this payment on account nonsense. I had to do this a couple of years ago & it really messed with my cashflow.

The extra tax due would be 25% of the dividend, so the tax would be £875, not £1400!

Alan

[Nixon Williams]

Ok, I know I'm letting myself open for some stick here but the fact of the matter is I've somehow messed up and paid myself £3500 that didn't get declared as a dividend in the last tax year.

I'm already maxed out up to the higher rate threshold so accountant is telling me to declare a paper only dividend - which means I'll have £3500 less to pay myself this year.

I know my accountant plays things by the book so won't suggest any creative way out of this but what is the way to go here?

Declare the paper only dividend?

Tell accountant I'd prepared the divi paperwork myself & had forgotten to send it to him & pay the higher rate tax?

Put £3500 of my savings into business a/c and pay it off as director's loan (don't particularly want to do this)?

Assuming that you have the funds available, then treat it as a director's loan and repay it asap.

Do check with your accountant as there maybe some facts that I am not aware of.

Alan

[Malcolm Buggeridge]

2. Have a look through your dividend vouchers and meeting minutes to see if you can find the "lost" paperwork and if you do find that it was actually done then give the paperwork to your accountant. You can then have what appears to be a loan treated as income for the last tax year. This will put you into the higher rate tax though which you apparently want to avoid so may not be a good option.

Yes, take the hit this year is probably the way to go.

2) looks like the least expensive option as I will just have to pay 40% on £3500. What I'm worried about is this payment on account nonsense. I had to do this a couple of years ago & it really messed with my cashflow.

Thanks for the advice.

[Wanderer]

I've somehow messed up and paid myself £3500 that didn't get declared as a dividend in the last tax year. I'm already maxed out up to the higher rate threshold so accountant is telling me to declare a paper only dividend - which means I'll have £3500 less to pay myself this year.

I can't see why there is handwringing about this - you are going to have to pay the tax on your income from the company one way or another. If you took right up to your limit last year and then took a even more in the form of a (tax free) directors loan then you've got to account for that and pay the tax on it eventually. You can't go over the limit one year and then complain that it reduces the amount you can take the next year....


You have a couple of options:

1. Account for the £3,500 as a director's loan and have it paid off by a dividend this accounting year (there isn't any BIK on a directors loan so long as it was <£5k during the year). Yes, it will reduce your allowance this year but you can't get something for nothing.

2. Have a look through your dividend vouchers and meeting minutes to see if you can find the "lost" paperwork and if you do find that it was actually done then give the paperwork to your accountant. You can then have what appears to be a loan treated as income for the last tax year. This will put you into the higher rate tax though which you apparently want to avoid so may not be a good option.

3. Don't repay the director's loan. You can leave it outstanding indefinitely if you want. Be careful because this means you have only £1,500 available for directors loans before you go over the £5k limit which would mean you have to pay interest/BIK tax and if you don't repay it before the end of the year you have to declare it and potentially pay S455 tax on it. All this complicates your tax affairs a bit and it sounds like you would prefer to avoid that.

None of these options are a particularly big deal, any half decent accountant can advise you what to do.

[Sockpuppet]

When talking about sums less than £5k why bother to get "creative". Now if your talking £5 billion its worth it.

[BolshieBastard]

Ok, I know I'm letting myself open for some stick here but the fact of the matter is I've somehow messed up and paid myself £3500 that didn't get declared as a dividend in the last tax year.

I'm already maxed out up to the higher rate threshold so accountant is telling me to declare a paper only dividend - which means I'll have £3500 less to pay myself this year.

I know my accountant plays things by the book so won't suggest any creative way out of this but what is the way to go here?

Declare the paper only dividend?

Tell accountant I'd prepared the divi paperwork myself & had forgotten to send it to him & pay the higher rate tax?

Put £3500 of my savings into business a/c and pay it off as director's loan (don't particularly want to do this)?



Higher rate tax seems the way to go but I'm sure there were other implications once you were in the higher rate like having to make payments on account periodically. I was there before and it was a right pain in the a**.

Thanks in advance.

Listen to what your accountant is saying. Obviously you didnt (or didnt tell him how much divis you were taking) before so why not save yourself the hassle (and any 'creative' thinking other board members may give) and do as he says this time?

Seriously, if you are in a hole, why keep digging?

[Malcolm Buggeridge]

Ok, I know I'm letting myself open for some stick here but the fact of the matter is I've somehow messed up and paid myself £3500 that didn't get declared as a dividend in the last tax year.

I'm already maxed out up to the higher rate threshold so accountant is telling me to declare a paper only dividend - which means I'll have £3500 less to pay myself this year.

I know my accountant plays things by the book so won't suggest any creative way out of this but what is the way to go here?

Declare the paper only dividend?

Tell accountant I'd prepared the divi paperwork myself & had forgotten to send it to him & pay the higher rate tax?

Put £3500 of my savings into business a/c and pay it off as director's loan (don't particularly want to do this)?



Higher rate tax seems the way to go but I'm sure there were other implications once you were in the higher rate like having to make payments on account periodically. I was there before and it was a right pain in the a**.

Thanks in advance.