Sole Trader to Ltd - Director's loans

[CRB14]

MaxFromage said:

Sorry I have to disagree entirely with the frequency of dividends. Find me a case where monthly dividends have been challenged... Or find me an accountant advising that they have been challenged during an enquiry. The only issue is paperwork. If HMRC felt they could attack it, they would have by now.

There's nothing to agree or disagree with. I'm only saying that I have been advised not to take more than quarterly. It works for me and may not for others but the issue around deemed salaries and such (which I won't profess to know anything about) was mentioned.

If monthly dividends weren't an issue then it wouldn't even be talked about. The fact that it is (as Eric mentions) to me suggests to me that there could be an issue.

[sumo69]

As said, I try and avoid having clients taking a monthly dividend, however a monthly draw against the loan account which is topped up on a quarterly basis is another matter. As long as the client draws up the paperwork on a timely basis, there is never going to be an issue with this.

David

[cmc68]

Thanks all. I'm learning so much from this discussion.

The suggestion put to me today was that frequency is not so much the issue as pattern. So in other words vary the value of the dividends and the frequency.

All that said I think quarterly will be fine alongside the basic salary.

Plus we will be making a loan to the business to fund an acquisition and early cash flow.

So between those two I'm sure we can manage our family cash flow.

[MaxFromage]

Eric Mc said:

Everything I have read or heard at numerous tax lectures over the years has pointed to the dangers of paying dividends too frequently. However, there is no specific legislation that dictates when dividends can or cannot be paid.

HMRC have the powers to interpret payments based on their view on what they represent. The only factor that stops them from tackling frequent "dividend" payments is lack of resources at their end.

So, if you want to pay monthly dividends, go ahead and do so. But do be aware that there is an element of risk attached to that strategy - especially if all the other underlying supporting "dividend decision" paperwork is not maintained.

Basing how you apply tax regulations on the mantra that "HMRC have never caused me a problem" is a flawed approach. It could just mean that, so far, you have been lucky.

An interesting point re the dividends at lectures, I've never heard anything to the contrary.

I can't disagree about interpretation. But what is the difference between your salary and quarterly dividend using up the basic rate allowance (as mentioned earlier) and the same with monthly dividends. None I would suggest, as you suggest, the only possible attack by HMRC is intention.

Paperwork for dividends takes a few seconds using accounting software.

I'm not basing my decision on my experience, but that of accountants in general, i.e. Accountingweb. It is clear to see that some are concerned, but there are far easier targets...

If someone is happy with a quarterly dividend, then why not, no harm to anyone. If HMRC are going to come knocking, I would be more concerned with those manipulating income to keep with tax bands (pension payments etc), excesses to spouses etc (which are already under attack).

[Eric Mc]

HMRC have a number of lines of attack.

Dividend payments tend to be queried, not when a company's Corporation Tax affairs are being investigated, but more often following a PAYE visit - as it is the NI aspect that HMRC are most concerned about.