Reply to: Dividends or PAYE

[Jessica@WhiteFieldTax]

There's a post on AccountingWeb where an accountant was just putting dividend payments as a non-tax item on monthly payslips with no paperwork, which is obviously problematic - linky.

Things like that make we wince. Like when agencies / clients pay limited companies using the payroll, PAYE style payslips and a NT taxcode - seems to me to set the wrong tone. Very hard to talk your way out of disguised employment....

[DirtyDog]

Does anybody know where this idea that you shouldn't take monthly dividends came from? It's quite odd. As ASB says, as long as their is sufficient retained profit and the correct paperwork is drawn up, a dividend is a dividend.

There's a post on AccountingWeb where an accountant was just putting dividend payments as a non-tax item on monthly payslips with no paperwork, which is obviously problematic - linky.

So, if some accountants are getting this so fundamentally wrong, you can see how it might lead to the perception that "monthly dividends are a bad thing".

[ASB]

My understanding is that it would most likely be treated as a loan, so possible further complications depending on the amount.

That said, if you can't be arsed to take the time to get it right (it's not rocket science), then more fool you.

CTM20095 - ACT: General: Notes on company law aspects of dividends

whilst it may be treated as a loan the actuality is that it was held on trust by the recipient. Certainly a mess.

an issue is that a number of offences under the companies act may have een commited. Though quite who would have the right to complain and sanction for that is beyond me.

[TheCyclingProgrammer]

I guess there could be problems with certain articless. However the remedy for an illegal dividend is that it gets repaid. Not that is magically turns into salary.

My understanding is that it would most likely be treated as a loan, so possible further complications depending on the amount.

That said, if you can't be arsed to take the time to get it right (it's not rocket science), then more fool you.

[ASB]

Does anybody know where this idea that you shouldn't take monthly dividends came from? It's quite odd. As ASB says, as long as their is sufficient retained profit and the correct paperwork is drawn up, a dividend is a dividend.

About the only genuine reasons for not taking them monthly that I can think of are 1) you can do more with the money if you take as much as you can in one go and b) less paperwork.

I think their is a view that it could invite comment from hmit. But since one would already be under investigation its probably irrelevant.

I dont recall any of the accountants being particularly cautious save for the natural make sure paperwork is ok.

I guess there could be problems with certain articless. However the remedy for an illegal dividend is that it gets repaid. Not that is magically turns into salary.

[northernladuk]

Does anybody know where this idea that you shouldn't take monthly dividends came from? It's quite odd. As ASB says, as long as their is sufficient retained profit and the correct paperwork is drawn up, a dividend is a dividend.

About the only genuine reasons for not taking them monthly that I can think of are 1) you can do more with the money if you take as much as you can in one go and b) less paperwork.

It's come up a couple of times on here with questions asking if HMRC will see this as akin to a salary. The posts tend to start off 'A mate says'. People that haven't a clue making assumptions that is all.

[TheCyclingProgrammer]

Does anybody know where this idea that you shouldn't take monthly dividends came from? It's quite odd. As ASB says, as long as their is sufficient retained profit and the correct paperwork is drawn up, a dividend is a dividend.

About the only genuine reasons for not taking them monthly that I can think of are 1) you can do more with the money if you take as much as you can in one go and b) less paperwork.

[northernladuk]

Tcp, the reason it sounds like bollocks is simple. It is.

the only thing that matters is that they are properly declared.

Absolutely. Just because something happens monthly it has absolutely no relation to anything else. A dividend and a salary might be paid monthly but they couldn't be more different. It's best IMO to take the whole dividend at the beginning of the year to slap it in something that is going to earn you more cash than the business account but only if you have the profit available to do so. Get it out as fast as you can rather than picking a system that leaves spare money in a poor interest account.

[ASB]

Tcp, the reason it sounds like bollocks is simple. It is.

the only thing that matters is that they are properly declared.

[TheCyclingProgrammer]

BTW my accountant told me that it doesn't matter how often I take dividends - for instance each month - whereas a friend was advised by his to take dividends once a year. Does it really matter?

Thanks.

Not really. There is a line of thinking that HMRC would consider monthly dividends to actually be a "salary" but I'm not sure what basis there is for that (sounds like bollocks to me).

Personally I declare them quarterly although if you have a big enough war chest to do it (i.e. enough retained profit in the company), probably the best thing you can do, depending on your circumstances, is take the whole years worth in one go.

If you have an offset mortgage, you could stick it in there which saves you money, if you have a normal mortgage and your good enough at budgeting that you know you can afford overpayments, you could make a lump sum overpayment (which saves you more in interest than making regular monthly overpayments). Or you can stick some of it in an ISA although that won't earn you a whole lot right now.

[Contreras]

BTW my accountant told me that it doesn't matter how often I take dividends - for instance each month - whereas a friend was advised by his to take dividends once a year. Does it really matter?

Thanks.

It depends who you ask.

[Daventry]

BTW my accountant told me that it doesn't matter how often I take dividends - for instance each month - whereas a friend was advised by his to take dividends once a year. Does it really matter?

Thanks.

[Zero Liability]

Yeah, I see what you mean. It's another good reason to pay yourself a £10k salary in that event.

[ASB]

I hope it functions as a flat £2k allowance. I had read elsewhere it could be an exemption per employee, but the document you linked to doesn't imply that.

Just out of curiosity, where is it written that it will not apply against employer NICs for contractors inside IR35? If HMRC is going to pretend the intermediary isn't there when it's convenient but still demand NICs due from the intermediary, surely you should be able to offset these? Because if they did (hypothetically) pursue them from the end client (the supposed employer), I can't see why the end client wouldn't be able to apply this exemption; so why is a PSC any different?

I believe it will apply. It applies to actual salaries and if these are paid then bingo.

I don't think it will apply to deemed payments though. There isn't a salary paid. Only a tax calculation.

[TheCyclingProgrammer]

I hope it functions as a flat £2k allowance. I had read elsewhere it could be an exemption per employee, but the document you linked to doesn't imply that.

Just out of curiosity, where is it written that it will not apply against employer NICs for contractors inside IR35? If HMRC is going to pretend the intermediary isn't there when it's convenient but still demand NICs due from the intermediary, surely you should be able to offset these? Because if they did (hypothetically) pursue them from the end client (the supposed employer), I can't see why the end client wouldn't be able to apply this exemption; so why is a PSC any different?

There has been no suggestion from HMRC that PSCs will not eligible, whether inside or outside IR35, although I believe there has been some commentary from others to that effect. The only reference I've seen is this article that Martin @ NW posted in my previous salary thread:

Every business and charity to receive a £2,000 employment allowance - Employers | UK Budget 2013 | Deloitte UK