Taking dividends

[SIR MP]

Hi Chaps,

A few technical questions,

1.Should dividends go through the payoll?
2.What happens if your accountant forgets to include the dividend payment on your tax return ?
3.Following the error if the Company went into liquidation, would you then only have to repay the tax on the cash or the cash itself not declared?

[UpTheIron]

SIR MP said:

1.Should dividends go through the payoll?

What do you mean by "through the payroll"? They should be declared & dividend vouchers issued.

SIR MP said:

2.What happens if your accountant forgets to include the dividend payment on your tax return ?

You make a mental note to check YOUR tax return in future, as YOU are responsible for it. If you owe extra tax as a result, then you need to pay it (along with fines, interest etc if it's late)

SIR MP said:

3.Following the error if the Company went into liquidation, would you then only have to repay the tax on the cash or the cash itself not declared?

Is this your company and were you a director? Was the dividend paid out of actual profit or were you banking on making enough to cover your debts after paying it?

[SIR MP]

1. I mean can you just write out a cheque and post it to the DLA, or does it have to be added to Net Salary on the payroll.
2. Oh poo
3. The second one

[Eric Mc]

SIR MP said:

Hi Chaps,

A few technical questions,

1.Should dividends go through the payoll?
2.What happens if your accountant forgets to include the dividend payment on your tax return ?
3.Following the error if the Company went into liquidation, would you then only have to repay the tax on the cash or the cash itself not declared?

I. Dividends ar nothing to do with wages or payroll. Therefore they are not posted through the accounts in the same way as wages. They are distributions of the company's profits - not a company expense

2. If your accountant "forgot" to include the dividend amounts on the tax return, you have obviously submitted an incorrect return. You therefore need to submit a "repaired" return showing the omitted information. If there was additional Income Tax due in respect of the omitted dividend, this should be paid IMMEDIATELY in order to mitigate any interest charges and penalties.
The completion of the return is YOUR respnsibility, not your accountants. Therefore, the Revenue will not be interested too much in excuses based on having a useless accountant, although they may take that into account when deciding the penalties to levy.
If you feel sufficiently aggrieved, you could always sue the accountant.

3. Why would the company go into liquidation?
The dividend was omitted from your PERSONAL tax return therefore it is YOUR tax that was underpaid, not the company's. Putting the company into liquidation will have no effect on your personal tax arrears.

[SIR MP]

1. So does it matter how the divi is paid as long as it is recorded correctly, if so how should the payment be posted
2. He will be replaced as soon as poss.
3. Say it was a personal expense say school fees, not posted to DLA but treated as P/L expense and the Company went into liquidation, is it the tax on the cash or the cash that is due

[Eric Mc]

SIR MP said:

1. So does it matter how the divi is paid as long as it is recorded correctly, if so how should the payment be posted
2. He will be replaced as soon as poss.
3. Say it was a personal expense say school fees, not posted to DLA but treated as P/L expense and the Company went into liquidation, is it the tax on the cash or the cash that is due

1. There are two aspects to dividends - how they are recorded in the company accounts and how they are declared for Income Tax purposes on the shareholder's Self Assessment tax return. In the company accounts, the dividend is shown as an after Corporation tax deduction in the Profit and Loss account and also credited to the Director's Current Account/Loan Account or a Dividend Payable account in the balance Sheet. Once the cash has been paid to the shareholder, the relevant creditor account in the balance sheet will be zeroed out.

2. Fair enough - sounds like not before time.

3. If the company physically paid out money in respect of a director's child's school fees, that means the company paid a personal bill on behalf of the director. That expense is not a business expense and should not be shown in the company's profit and loss account. The payment should really have gone directly to the director's current account/loan account. Once there it could have been cleared by voting a dividend, on which the director would ultimately pay Income Tax.
The Revenue are not that keen on this type of accounting treatment of such personal expenditure but at least they get to see that the uindividual is "remunerating" himslef from the company in a legitimate way and declaring that income properly in his tax return.

I don't understand why you keep mentioning liquidation.

Is the company insolvent - in which case the payment of a dividend may have been illegal anyway. In those circumstances, dissolving the company could lead you open to Section 419 Corporation tax charges not to mention prosecution for reckless or fraudulent trading.

[Brown and Boris]

Reading between the lines here, but it sounds like:

A director has taken their dividend without telling people (like the acountant). You are worried it may leave a liability for the company rather than a personal liability the director who took it?