Reply to: Reducing Payment on account for large dividend

[lecyclist]

In that case, the pension approach JB mentioned isn't in the picture.

Has your corporation tax from your last completed tax year been paid, and if not, how much was it? If you don't retain enough to cover tax liabilities already incurred (CT for your prior year plus CT for the current year to date, plus any VAT due on revenue to date), you've paid an illegal dividend.

It may appear illegal also. However, if the dividend payment was made according to future revenue expectations, that never materialise, the requirement will be for the shareholder to repay the shortfall.

[northernladuk]

I also hold board meetings and vote on dividends - I've got the paperwork to prove it!

Thanks to this thread you might have an idea why and how it works as well. Double bonus.

[pr1]

But they can still be completely different animals. Large companies can not shoehorn divis through at the last minute like we can. They have to hold AGM and vote on the divis and so on. Something you (and most contractors) probably don't appreciate when ticking your boxes. It's us bending the rules and taking them down to the wire where many other larger companies simply cannot.

I also hold board meetings and vote on dividends - I've got the paperwork to prove it!

[TheFaQQer]

But they can still be completely different animals. Large companies can not shoehorn divis through at the last minute like we can. They have to hold AGM and vote on the divis and so on. Something you (and most contractors) probably don't appreciate when ticking your boxes. It's us bending the rules and taking them down to the wire where many other larger companies simply cannot.

No they don't - they have to hold a board meeting, not an AGM.

Which they could do at any time. It's unlikely that they would declare a dividend that late in the tax year, but they could.

Even so, it is the responsibility of the tax payer to ensure that they have all the paperwork for the tax year correct when they file their return. It would be very silly to do that on April 8th, when it's unlikely that you will have the paperwork - but if you did, then you would be liable for the error.

[northernladuk]

but legally they're all limited companies and under the same rules?

But they can still be completely different animals. Large companies can not shoehorn divis through at the last minute like we can. They have to hold AGM and vote on the divis and so on. Something you (and most contractors) probably don't appreciate when ticking your boxes. It's us bending the rules and taking them down to the wire where many other larger companies simply cannot.

[pr1]

There is a big difference between the way big companies and small tax dodging contractors work.

but legally they're all limited companies and under the same rules?

[pr1]

You are making this up. No one does their tax returns on the 8th if April and is part of the reason you have so long to get them in. You are just putting hypothetical unreal situations in here. Big companies do not issue shares the day before the new tax year either. There is a big difference between the way big companies and small tax dodging contractors work.

I assume reading all this you just let your accountant deal with all this and just tick the box when they say?

just trying to gather the necessary to mock my friend if it turns out he didn't have to pay a chunk load more tax than he wanted to last year (he was under the impression there was nothing he could do about it and just took the hit)

[northernladuk]

You are making this up. No one does their tax returns on the 8th if April and is part of the reason you have so long to get them in. You are just putting hypothetical unreal situations in here. Big companies do not issue shares the day before the new tax year either. There is a big difference between the way big companies and small tax dodging contractors work.

I assume reading all this you just let your accountant deal with all this and just tick the box when they say?

[pr1]

But then you could argue he's not doing his job properly as he should be voting on the share distributions and managing the DL account.

I thought it was when it physically arrives in your personal account - as a friend got stung with this last year when he paid himself the "first dividend of the year" in the first week of April - which meant he'd taken 5 quarterly payments in one tax year

edit: what if it was a declared dividend to a non-director (i.e. regular shareholder) - where does the money sit in the interim in that case?

Nope. The debt is created once the voting has been done and then dividend voucher has been agreed. He has effectively been paid it, it's just moved to the DL. Normal share holders don't have access to the DL so it's not an option for them.

Ok so directors meet and declare a dividend on 31st march 2016 - ShareholderA (a non-director) is owed £50k as per his shareholdings - they pass it over to the accounts team to set up the payments (who are slow and take until 10th april to pay it)

ShareholderA fills in his tax return on the 8th of april and doesn't declare the 50k, because he didn't know anything about it

Has ShareholderA done anything wrong by omitting it from his 2015/16 tax return?

this is why I thought it is based on when the payment is received personally, not when it was declared - otherwise the above situation can occur?

[northernladuk]

Is that right? Your personal income is based on when money goes into the directors loan account of a company? In that case someone who was a director of multiple companies might unknowingly owe £££££s on a tax return having never seen the money personally?

But then you could argue he's not doing his job properly as he should be voting on the share distributions and managing the DL account.

[quote ]
I thought it was when it physically arrives in your personal account - as a friend got stung with this last year when he paid himself the "first dividend of the year" in the first week of April - which meant he'd taken 5 quarterly payments in one tax year

edit: what if it was a declared dividend to a non-director (i.e. regular shareholder) - where does the money sit in the interim in that case?[/QUOTE]

Nope. The debt is created once the voting has been done and then dividend voucher has been agreed. He has effectively been paid it, it's just moved to the DL. Normal share holders don't have access to the DL so it's not an option for them.

[pr1]

A dividend is effectively paid once the money is at your disposal, i.e. once it has been declared and credited to your director's loan account. There's no need for the payment to have left your company account, only for the paperwork to show the date it's due to be paid, at which point it is credited to your director's loan account. You'll then forward this paperwork to your accountant, so there will be no question about acting retrospectively (which, obviously, should not be done).

Is that right? Your personal income is based on when money goes into the directors loan account of a company? In that case someone who was a director of multiple companies might unknowingly owe £££££s on a tax return having never seen the money personally?

I thought it was when it physically arrives in your personal account - as a friend got stung with this last year when he paid himself the "first dividend of the year" in the first week of April - which meant he'd taken 5 quarterly payments in one tax year

edit: what if it was a declared dividend to a non-director (i.e. regular shareholder) - where does the money sit in the interim in that case?

[heyya99]

In that case, the pension approach JB mentioned isn't in the picture.

Has your corporation tax from your last completed tax year been paid, and if not, how much was it? If you don't retain enough to cover tax liabilities already incurred (CT for your prior year plus CT for the current year to date, plus any VAT due on revenue to date), you've paid an illegal dividend.

Yes, I paid my 25k CT mid-February. All my VAT is up-to-date.

According to my SJD spreadsheet, my next CT is 6k so far and I have a max remaining dividend estimate of 172k.

[WordIsBond]

This is for the house again is it?

In that case, the pension approach JB mentioned isn't in the picture.

Has your corporation tax from your last completed tax year been paid, and if not, how much was it? If you don't retain enough to cover tax liabilities already incurred (CT for your prior year plus CT for the current year to date, plus any VAT due on revenue to date), you've paid an illegal dividend.

[heyya99]

So where is your CT and VAT money in those numbers?

I have 14k coming into my business each month to cover those. So the 40 left will be for living off in tax year 16/17 and the incoming 14ks will cover business expenses, CT and VAT.

[northernladuk]

So where is your CT and VAT money in those numbers?