Reply to: Dividends and salary - to the same bank account

[pappel]

Is it alright to pay salary and dividends to the same bank account?

yes, it is absolutely fine.

[TheCyclingProgrammer]

This. It's one of a few reasons whilst I love FreeAgent, I hate their "smart user payment" option. If looked into, it certainly doesn't give the impression the business owner is fully aware of what's going on, checking the figures, and drawing funds appropriately.

I also never use the "smart user payment". I can sort of understand the idea but I also prefer to keep my dividend, salary and expense payments separate with distinct transaction references. On the odd occasion I've paid salary + expenses at the same time, it never did what I thought it would do anyway.

[Clare@InTouch]

At the risk of continuing this on topic discussion...

Some people have argued that paying into a joint account shows that you have a retained interest in the money. Personally, I'd like to think that a decent lawyer would be able to argue that point with HMRC, if there is the right paperwork in place.

My company pays any dividends into separate accounts - mine go into an account solely in my name; dividends for my wife goes into an account which is in joint names. But that's because we get better interest in there than anywhere else.

I think that's fine.

Having a retained interest doesn't matter if you're married. If you're not, then it's an indication that the Settlements Legislation could apply.

In order to be a Settlement it must be cover the three criteria - Retained interest, bounty, arrangement. But there's then an exemption for outright gifts between spouses provided it's not merely a right to income (so careful of B shares that have no voting rights or rights to capital).

[TheFaQQer]

This query may originate from discussions over whether it is OK to pay dividends to a spouse shareholder into a bank account over which you have control. I forget the answer and whether a joint bank account matters.

At the risk of continuing this on topic discussion...

Some people have argued that paying into a joint account shows that you have a retained interest in the money. Personally, I'd like to think that a decent lawyer would be able to argue that point with HMRC, if there is the right paperwork in place.

My company pays any dividends into separate accounts - mine go into an account solely in my name; dividends for my wife goes into an account which is in joint names. But that's because we get better interest in there than anywhere else.

[Clare@InTouch]

This query may originate from discussions over whether it is OK to pay dividends to a spouse shareholder into a bank account over which you have control. I forget the answer and whether a joint bank account matters.

A joint account is fine, provided you have the paperwork to show what the transaction is.

If you're paying your wife's dividends into your own personal account and never allowing her access I can see HMRC may have concerns, but presumably if she gives consent then there's little to be done (if you have shares in Apple do they check what account you've asked them to pay dividends into?). I'd still advise doing things properly though.

[dty]

You can split a transaction, just overtype the amount and allocate to one category, then FreeAgent will leave the balance unexplained for you to explain somewhere else (or repeat). Basically same as this method.

That's just creating multiple entries in the books though, no? At least, that's how FA support described it to me. Anyway... this is all very off topic! :-)

[speling bee]

This query may originate from discussions over whether it is OK to pay dividends to a spouse shareholder into a bank account over which you have control. I forget the answer and whether a joint bank account matters.

[Maslins]

Except you can't! You can't split transaction and you can't move money between arbitrary accounts.

You can split a transaction, just overtype the amount and allocate to one category, then FreeAgent will leave the balance unexplained for you to explain somewhere else (or repeat). Basically same as this method.

[dty]

FreeAgent's understandable stance is that the smart user payment feature is only an option, nobody's obliged to use it. You can of course specifically state £X expenses, £Y salary, £Z dividends. I do wish it wasn't there as an option in the first place though.

Except you can't! You can't split transaction and you can't move money between arbitrary accounts.

In this case, you'd have to record 3 separate transactions (instead of one transaction debiting the bank account and crediting expenses, dividends and payroll). So now you have 3 entries on your bank account and 2 choices: either make multiple physical payments to match (extra bank fees) or else make a single payment (awkward to reconcile back to the books).

[Maslins]

FA just did something quite scary with my Smart User Payment. I made a payment which it allocated partly to expenses and partly to dividend. So far, so good. I printed the divi voucher, signed it and filed it. Then I noticed I'd missed some expenses from before the payment date. So I entered those expecting that they would just accrue on the expense account for payment next month, but no! FA adjusted the expenses/dividend split of my Smart User Payment without telling me or warning me! So suddenly my divi voucher was wrong! Good job I spotted that.

I found that really odd in Freeagent, so glad it's not just me. I had a client who paid equal dividends, but because expenses and salary were unequal Freeagent had done some bizarre behind the scenes adjustment, seemingly without him being aware, that made the dividends uneven. Very odd, and resulted in the SA comp being totally wrong on Freeagent.

Indeed. Two prime examples of situations where the smart user payments aren't so smart. Both situations we've seen multiple times unfortunately.

Re the multiple shareholders thing, it's not that FreeAgent does any clever behind the scenes adjustments for smart user payments. It's just that it splits the payment based on any debts already owed to the individual first, with the balance going to dividends. Like you suggest, if expense balances are different (as they often are) then dividends will be split differently too.

...and yes, seemingly smart user payments remain flexible...so you make the payment, and it splits it based upon things at that date in FreeAgent. Then a while later, you add in some additional backdated expenses, and suddenly your dividends drawn has changed. Not good.

FreeAgent's understandable stance is that the smart user payment feature is only an option, nobody's obliged to use it. You can of course specifically state £X expenses, £Y salary, £Z dividends. I do wish it wasn't there as an option in the first place though.

[dty]

I've used their support (directly or via their forums) 3 or 4 times now, and I'm not exactly impressed!

[Clare@InTouch]

FA just did something quite scary with my Smart User Payment. I made a payment which it allocated partly to expenses and partly to dividend. So far, so good. I printed the divi voucher, signed it and filed it. Then I noticed I'd missed some expenses from before the payment date. So I entered those expecting that they would just accrue on the expense account for payment next month, but no! FA adjusted the expenses/dividend split of my Smart User Payment without telling me or warning me! So suddenly my divi voucher was wrong! Good job I spotted that.

Let Freeagent know, hopefully they'll then realise the system is scary and change it!

[dty]

FA just did something quite scary with my Smart User Payment. I made a payment which it allocated partly to expenses and partly to dividend. So far, so good. I printed the divi voucher, signed it and filed it. Then I noticed I'd missed some expenses from before the payment date. So I entered those expecting that they would just accrue on the expense account for payment next month, but no! FA adjusted the expenses/dividend split of my Smart User Payment without telling me or warning me! So suddenly my divi voucher was wrong! Good job I spotted that.

[Clare@InTouch]

This. It's one of a few reasons whilst I love FreeAgent, I hate their "smart user payment" option. If looked into, it certainly doesn't give the impression the business owner is fully aware of what's going on, checking the figures, and drawing funds appropriately.

I found that really odd in Freeagent, so glad it's not just me. I had a client who paid equal dividends, but because expenses and salary were unequal Freeagent had done some bizarre behind the scenes adjustment, seemingly without him being aware, that made the dividends uneven. Very odd, and resulted in the SA comp being totally wrong on Freeagent.

[Maslins]

Yes, just make sure they are distinct from salary. So don't just pay £5,000 a month into your current account and expect your accountant to split it into salary, expenses and dividends for you at year end. Do things properly and make a payment for salary each month, then pay dividends as and when, and keep a copy of the dividend vouchers on file. Pay expenses according to what you're owed.

This. It's one of a few reasons whilst I love FreeAgent, I hate their "smart user payment" option. If looked into, it certainly doesn't give the impression the business owner is fully aware of what's going on, checking the figures, and drawing funds appropriately.