At a loss about dividends

[DaveB]

The balance sheet shows "shareholders funds". That's the most you can pay. Pay more than that and it's pretty black and white that the dividends are illegal, and as that's submitted to Companies House they could probably institute some kind of automated checking and you could find yourself in the cells the day after submitting your annual accounts.

Why is this in General? What's it got to do with immigrants and lunch?

This

[psychocandy]

Yes I always thought paying dividends when there was no profit was not allowed. Certainly my accountant would say no you can't do that.

However, and these people are sole traders Im guessing, the business forums are full of people who spend the VAT/tax money and then worry about it later. I suppose in some cases, liek if you've got shop and need stock, they need to keep the business going.

Seems in a lot of cases though, people then hold their hands up, say cant pay, and get away with a lot of it.

[VectraMan]

The balance sheet shows "shareholders funds". That's the most you can pay. Pay more than that and it's pretty black and white that the dividends are illegal, and as that's submitted to Companies House they could probably institute some kind of automated checking and you could find yourself in the cells the day after submitting your annual accounts.

Why is this in General? What's it got to do with immigrants and lunch?

[SimonMac]

People "think" a lot of things, that does not make them right .

Opinions are like arseholes, everybody has one but very few people should share there's with the rest of us

[MrMarkyMark]

This is entirely my opinion but I don't think you need to worry about paying salary or dividends when you are not making any money or even if you are in a negative equity situation.

People "think" a lot of things, that does not make them right .

I see your point about the way big firms "manage" their business, but a lot of them do not pay corporation tax either.
Do you think you would get away with that?

[SimonMac]

Finally bear in mind the original question was about when the company had no monthly fee income. Nobody said the company had not got profits or reserves from previous activities.

No income, but spending to pay to drum up new revenue and making a loss = Allowed
No income, but spending for the sake of it and making a loss = Bend over and touch your toes

[SimonMac]

I have taken three months off last year so have billed less this financial year and I have taken made a loss this year, I carried over a profit from the previous year, and due to the change in dividends tax I am taking off more dividends than profit from this year, but I still have the money to pay for VAT, CT and PAYE.

I think that's that the OP Is saying?!

[DaveB]

Finally bear in mind the original question was about when the company had no monthly fee income. Nobody said the company had not got profits or reserves from previous activities.

Which makes your original question pointless, since this is perfectly acceptable and always has been.

The only loss involved here seems to be your loss of ability to think and reason coherently.

[mudskipper]

Nobody said the company had not got profits or reserves from previous activities.

That's different - if the company still has profit carried over, it can pay a dividend.

[NotAllThere]

I guess my point was whilst people keep on saying dividends can only be paid out of profits, I don't think that is true. So we need to double check that first.

No. You need to double check first before making idiotic comments. Do you think those of us who've been contracting for years have been living in la la land and haven't already checked these things? It is well established that you must pay dividends out of profits. To quote Master N. Molesworth - Any fule kno that.



Getting away with it doesn't mean it's legal.

[TheFaQQer]

I guess my point was whilst people keep on saying dividends can only be paid out of profits, I don't think that is true. So we need to double check that first.

Not sure why you would think that it's not true - dividend payments can only come out of profit:

https://www.gov.uk/running-a-limited...imited-company

Dividends
A dividend is a payment a company can make to shareholders if it has made enough profit.

You can’t count dividends as business costs when you work out your Corporation Tax.

Your company mustn’t pay out more in dividends than its available profits from current and previous financial years.

Dividends - FAQs - FreeAgent

And it's illegal for your company to pay out more in dividends than it has available as profit for this year or profit held over from a previous year.

Secondly when we say 'can be somethinged' you have to realise that translates to 'who might stop you and how?'. I've been doing this a lot longer than almost anybody here and I've only had the Revenue get involved once. That was so long ago I can't remember the details. However I'm 99% sure I've paid dividends in the past when I'd made a loss and the Revenue didn't raise any questions.

Finally bear in mind the original question was about when the company had no monthly fee income. Nobody said the company had not got profits or reserves from previous activities.

Just because you get away with paying dividends when you haven't got profit or retained profit does not alter the legality of the dividend.

[northernladuk]

Erm.....

https://www.gov.uk/running-a-limited...imited-company

And
http://www.accountancy-edge.co.uk/di...dends-illegal/

There maybe ways around it using directors loans and fancy accounting methods but these aren't to be taken lightly. To come on and just say do it don't worry about it pretty poor advice.

[Cirrus]

I don't understand the above at all. Dividends can only be paid from profit for a start. Paying dividends out of money that you think you will earn later and can fudge the paperwork is something to worry about.

I guess my point was whilst people keep on saying dividends can only be paid out of profits, I don't think that is true. So we need to double check that first.

Secondly when we say 'can be somethinged' you have to realise that translates to 'who might stop you and how?'. I've been doing this a lot longer than almost anybody here and I've only had the Revenue get involved once. That was so long ago I can't remember the details. However I'm 99% sure I've paid dividends in the past when I'd made a loss and the Revenue didn't raise any questions.

Finally bear in mind the original question was about when the company had no monthly fee income. Nobody said the company had not got profits or reserves from previous activities.

[northernladuk]

I don't understand the above at all. Dividends can only be paid from profit for a start. Paying dividends out of money that you think you will earn later and can fudge the paperwork is something to worry about.

I don't think methods adopted by big companies are much use to single revenue T&M contractors.

[Cirrus]

This is entirely my opinion but I don't think you need to worry about paying salary or dividends when you are not making any money or even if you are in a negative equity situation.

Big companies do this all the time. It is the basis of capitalism (see previous thread on that topic).

If you pay out/continue trading at the expense of others eg shareholders, suppliers, lenders, HMRC then you may well get into trouble but as long as you don't diddle anybody including the Revenue, as a one man band you can go negative if you think that is appropriate. I mean as far as the Revenue are concerned, they would like you to keep spending. It puts cash their way.