illegal dividends and fake revaluations
Discussion
I am aware of a company who has according to their accounts paid illegal dividends last year and also noted the same this year. They have also revalued their own building to the tune of £60k. The accounts even note the Director revalued the company premises, so not even done by a professional.
The result is the company shows a net worth which is in fact worthless.
What's HMRC's view on the illegal dividend two years in a row?
I would say based on the evidence they cannot survive much longer as it is all smoke and mirrors.
The result is the company shows a net worth which is in fact worthless.
What's HMRC's view on the illegal dividend two years in a row?
I would say based on the evidence they cannot survive much longer as it is all smoke and mirrors.
JPJPJP said:
HMRC could get interested if it thought income was being declared as dividends when it isn’t. There are potential nic and other tax implications
Unlikely, but possible
If the recipient knows the dividend was unlawful, the money is held on trust for the company. It is void for income tax purposes because the company has not made a distribution as a matter of law, and so there is no income for the recipient. Unlikely, but possible
HMRC would however consider it to be a loan, which could trigger a charge under S455.
A shareholder who doesn’t know the dividend was illegal is treated as having received a dividend.
Alpinestars said:
JPJPJP said:
HMRC could get interested if it thought income was being declared as dividends when it isn’t. There are potential nic and other tax implications
Unlikely, but possible
If the recipient knows the dividend was unlawful, the money is held on trust for the company. It is void for income tax purposes because the company has not made a distribution as a matter of law, and so there is no income for the recipient. Unlikely, but possible
HMRC would however consider it to be a loan, which could trigger a charge under S455.
A shareholder who doesn’t know the dividend was illegal is treated as having received a dividend.
Yet the following year they have done exactly the same and included the same statement again.
trickywoo said:
Likely the people involved will be banned from being directors of a company in the future.
I assume by illegal dividends you mean the business is paying out more than it is earning / has in reserve and the money is being obtained by knowingly over trading and running up debts.
Yes borrowings have increased massively (147k), cash at bank figure could not even pay one months salary for the staff and directors (9k)I assume by illegal dividends you mean the business is paying out more than it is earning / has in reserve and the money is being obtained by knowingly over trading and running up debts.
Zoon said:
There are two directors who have stated on the current set of accounts and previous years accounts that they know they have taken dividends which are not covered by the profits of the company and will not do so again.
Yet the following year they have done exactly the same and included the same statement again.
What is the exact statement they have made?Yet the following year they have done exactly the same and included the same statement again.
Alpinestars said:
Zoon said:
There are two directors who have stated on the current set of accounts and previous years accounts that they know they have taken dividends which are not covered by the profits of the company and will not do so again.
Yet the following year they have done exactly the same and included the same statement again.
What is the exact statement they have made?Yet the following year they have done exactly the same and included the same statement again.
This is on last years and this years accounts.
Pit Pony said:
Imho they have not taken dividends. They have taken a loan. If there is profit in the next set of accounts, this can be paid as dividend, and the loan repaid with no cash changing hand. HMRC will need to see that the loan was provided with a reasonable interest rate.
The statement in the accounts clearly states dividends. Two years in a row.Pit Pony said:
Imho they have not taken dividends. They have taken a loan. If there is profit in the next set of accounts, this can be paid as dividend, and the loan repaid with no cash changing hand. HMRC will need to see that the loan was provided with a reasonable interest rate.
The bigger problem will be corporation tax on the loans. Interesting question
I know a someone that started a Ltd company in 2017 to buy a business, the main asset being a freehold building. This was valued at £2m by the bank for mortgage purposes.
A year later the Director revalued it at £3.5m (states the Director did this in the accounts). They have added the additional £1.5m onto the balance sheet which flows down to retained earnings. This is turn has been used to pay divis. Without that revaluation the retained earnings would be negative to the tune of £400k
Surely this can’t be legal? I would have thought that you’d need a commercial arms length valuation in order to add that the balance sheet
I know a someone that started a Ltd company in 2017 to buy a business, the main asset being a freehold building. This was valued at £2m by the bank for mortgage purposes.
A year later the Director revalued it at £3.5m (states the Director did this in the accounts). They have added the additional £1.5m onto the balance sheet which flows down to retained earnings. This is turn has been used to pay divis. Without that revaluation the retained earnings would be negative to the tune of £400k
Surely this can’t be legal? I would have thought that you’d need a commercial arms length valuation in order to add that the balance sheet
foliedouce said:
Interesting question
I know a someone that started a Ltd company in 2017 to buy a business, the main asset being a freehold building. This was valued at £2m by the bank for mortgage purposes.
A year later the Director revalued it at £3.5m (states the Director did this in the accounts). They have added the additional £1.5m onto the balance sheet which flows down to retained earnings. This is turn has been used to pay divis. Without that revaluation the retained earnings would be negative to the tune of £400k
Surely this can’t be legal? I would have thought that you’d need a commercial arms length valuation in order to add that the balance sheet
It’s not a realised profit. So is not distributable. I know a someone that started a Ltd company in 2017 to buy a business, the main asset being a freehold building. This was valued at £2m by the bank for mortgage purposes.
A year later the Director revalued it at £3.5m (states the Director did this in the accounts). They have added the additional £1.5m onto the balance sheet which flows down to retained earnings. This is turn has been used to pay divis. Without that revaluation the retained earnings would be negative to the tune of £400k
Surely this can’t be legal? I would have thought that you’d need a commercial arms length valuation in order to add that the balance sheet
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