Im rolling in money...
Discussion
My bank account has never ever been more full to the brim and overflowing with savings 
And the whole bloody lot (and some!) is going to the tax man
whoever he is, not that we know his name because none of us really mind at the end of the day
It really is quite painful to have to hand it all over when due day comes, and it does make you wonder where the hell it all goes
And the whole bloody lot (and some!) is going to the tax man
whoever he is, not that we know his name because none of us really mind at the end of the day It really is quite painful to have to hand it all over when due day comes, and it does make you wonder where the hell it all goes
Got an email from my accountant today, theres a crap new law or something (havnt spoken to them yet) which requires you to fill out two forms representing the minutes of a meeting every time you draw a penny out the account which is not salary, ie a divident.
So every time I use my bank card to draw out a few hundred quid, ive got to do two pages of paperwork. Did anyone else get a letter instructing them to do this?
So every time I use my bank card to draw out a few hundred quid, ive got to do two pages of paperwork. Did anyone else get a letter instructing them to do this?
Don said:
Aye, couldn't agree more. I'm dreading my Corp Tax payment in April!
You pay Corporation Tax?
Actually - I take it you want to make a profit in order to make dividend payouts possible. Can't escape the taxman...
I had this debate yesterday. My Tax advisor assures me that I'm 2% better off paying myself bonuses rather than a Dividend. I think it's something to do with the fact that I pay a higher rate of Corp Tax, but I'm not entirely sure of the mathematics.
There are no new "laws" about record keeping for dividend payments.
However, the Revenue have always been aware that Directors often "Remunerate" themselves through dividends instead of salary as a means of avoiding NI payments. Technically, a Dividend is not "Remuneration" - it is a "distribution" of the company's profit to the shareholders. If a director is going to pay himself by means of a dividend, the received wisdom is that paper evidence of the decision to pay the dividend should be maintained in the company's secretarial records in order to support the claim that the payment is indeed a proper distribution and not in lieu of salary. It is also good practice to ensure that dividend vouchers are printed off for every dividend paid and that the minute book is updated. The latter is actually a statutory requirement under Company Law and not strictly speaking a Revenue matter at all.
As I said, this is not new law - it is good practice and has been general advice on this matter for decades. If the Revenue are not satisfied that the payment was a genuine dividend, they have the power to have it re-classified as a salary payment and collect the underpaid tax and NI (plus interest, of course).
However, the Revenue have always been aware that Directors often "Remunerate" themselves through dividends instead of salary as a means of avoiding NI payments. Technically, a Dividend is not "Remuneration" - it is a "distribution" of the company's profit to the shareholders. If a director is going to pay himself by means of a dividend, the received wisdom is that paper evidence of the decision to pay the dividend should be maintained in the company's secretarial records in order to support the claim that the payment is indeed a proper distribution and not in lieu of salary. It is also good practice to ensure that dividend vouchers are printed off for every dividend paid and that the minute book is updated. The latter is actually a statutory requirement under Company Law and not strictly speaking a Revenue matter at all.
As I said, this is not new law - it is good practice and has been general advice on this matter for decades. If the Revenue are not satisfied that the payment was a genuine dividend, they have the power to have it re-classified as a salary payment and collect the underpaid tax and NI (plus interest, of course).
Eric Mc said:I wonder why I only first heard of this today then. Your exlpanation was fantastic, and sheds light on why it needs to be done this way, so thanks.
There are no new "laws" about record keeping for dividend payments.
However, the Revenue have always been aware that Directors often "Remunerate" themselves through dividends instead of salary as a means of avoiding NI payments. Technically, a Dividend is not "Remuneration" - it is a "distribution" of the company's profit to the shareholders. If a director is going to pay himself by means of a dividend, the received wisdom is that paper evidence of the decision to pay the dividend should be maintained in the company's secretarial records in order to support the claim that the payment is indeed a proper distribution and not in lieu of salary. It is also good practice to ensure that dividend vouchers are printed off for every dividend paid and that the minute book is updated. The latter is actually a statutory requirement under Company Law and not strictly speaking a Revenue matter at all.
As I said, this is not new law - it is good practice and has been general advice on this matter for decades. If the Revenue are not satisfied that the payment was a genuine dividend, they have the power to have it re-classified as a salary payment and collect the underpaid tax and NI (plus interest, of course).
What a pain though. Im one of those people who uses his business bank card as a cash card, and lets the accountants sort it all out at the end of the year
(Im not that bad really, I even put it through quickbooks for them so they dont have to spend hours sorting)Thanks for the compliment
To be honest, much of the above "advice" is largely ignored by both accountants amd their clients. I guess that the "Arctic Systems" case has re-awakened accountants' sensitivities to the fact that they shouldgive their clients proper advice on the handling of dividends.
The Revenue are obviously on a mission at the moment to obstruct the wholesale use of dividends as a tax saving device wherever possible. They have lots of other ammunition up their sleeve to fall back on if their current approach fails.
Watch out for an attack on "frequent" (such as weekly or monthly) dividend payments.
To be honest, much of the above "advice" is largely ignored by both accountants amd their clients. I guess that the "Arctic Systems" case has re-awakened accountants' sensitivities to the fact that they shouldgive their clients proper advice on the handling of dividends.
The Revenue are obviously on a mission at the moment to obstruct the wholesale use of dividends as a tax saving device wherever possible. They have lots of other ammunition up their sleeve to fall back on if their current approach fails.
Watch out for an attack on "frequent" (such as weekly or monthly) dividend payments.
A dividend is "deemed" to have been paid at the point it "defaults" to your loan account. So, you could find yourself being taxed on the dividend in a tax year in which you didn't actually receive the cash.
In any case, PAYE inspectors are aware that people could try this tactic and should also review the pattern of cash amounts drawn in favour of the directors/shareholders during the year. If they see (say) twelve monthly amounts of £1,000 being offset against an already "voted" dividend of £12,000, they could come to the conclusion that the monthly amounts were more in the way of "remuneration" rather than "distributions" and take action accordingly
One other problem which can arise with "monthly" dividend payments is that, unless the company monitors its overall profit and reserves position carefully, it is possible for excessive dividend amounts to be drawn. Excess dividends are actually illegal under Company Law and could result in the directors being prosecuted. The Inland Revenue also take a dim view of such practices and will levy a Section 419 Corporation Tax charge on the excessive divdends. In fact, under company Self Assessmment tax regulations, they will expect the directors to "Self Assess" the penal Section 419 tax liability and include it as part of the overall Cortporation Tax liability of the company when completing the Corporation Tax return form.
>> Edited by Eric Mc on Friday 27th January 18:41
In any case, PAYE inspectors are aware that people could try this tactic and should also review the pattern of cash amounts drawn in favour of the directors/shareholders during the year. If they see (say) twelve monthly amounts of £1,000 being offset against an already "voted" dividend of £12,000, they could come to the conclusion that the monthly amounts were more in the way of "remuneration" rather than "distributions" and take action accordingly
One other problem which can arise with "monthly" dividend payments is that, unless the company monitors its overall profit and reserves position carefully, it is possible for excessive dividend amounts to be drawn. Excess dividends are actually illegal under Company Law and could result in the directors being prosecuted. The Inland Revenue also take a dim view of such practices and will levy a Section 419 Corporation Tax charge on the excessive divdends. In fact, under company Self Assessmment tax regulations, they will expect the directors to "Self Assess" the penal Section 419 tax liability and include it as part of the overall Cortporation Tax liability of the company when completing the Corporation Tax return form.
>> Edited by Eric Mc on Friday 27th January 18:41
Also be aware - to draw "dividend" you *must* make a profit - and declare that profit for corporation tax. Also remember that whilst dividend may not count for NI purposes it counts as income...which means you will pay income tax on it eventually.
Now - since you've already paid corporation tax on the money you get "credit" for that. But if you're a higher rate tax payer (and who getting divvies isn't) you'll need to remember to put by the cash for paying that.
Also - whatever higher rate tax yoy pay on the dividend will then be used to calculate "Payment On Account" for the following year. Nice. So on Jan 31st you pay
* all the higher rate tax you owe
* half of that amount again as payment "on account"
and at the end of July
* half of that amount again as payment "on account"
Which should mean that if you declare a dividend again the following year you have nothing to pay. The idea is to remove the benefit of "deferring" tax. Bastards.
Now - since you've already paid corporation tax on the money you get "credit" for that. But if you're a higher rate tax payer (and who getting divvies isn't) you'll need to remember to put by the cash for paying that.
Also - whatever higher rate tax yoy pay on the dividend will then be used to calculate "Payment On Account" for the following year. Nice. So on Jan 31st you pay
* all the higher rate tax you owe
* half of that amount again as payment "on account"
and at the end of July
* half of that amount again as payment "on account"
Which should mean that if you declare a dividend again the following year you have nothing to pay. The idea is to remove the benefit of "deferring" tax. Bastards.
So far we have found it simpler to pony up the loot PAYE. We are currently looking into a Dividend based strategy. Our plan is to pay ourselves PAYE our Tax Allowances and then earn the rest as dividend. One can pay the dividend into the Director's Loan Account and then draw it over time.
Of course there is a cash flow implication to this.
We are having our auditors make up a plan even as we speak. I wouldn't try this without sound professional advice frankly.
Of course there is a cash flow implication to this.
We are having our auditors make up a plan even as we speak. I wouldn't try this without sound professional advice frankly.
I honestly don't know whether I'm getting the best advice. Essentially, I've been advised to pay myself a bonus (through PAYE) every quarter, based on cash balances. In short, we project cash flow up to 6 months in advance and if the lowest point goes above a certain figure then I take this (surplus) as a bonus. I've asked several times whether I'd be better off taking a Dividend but each time my accountant assures me that I wouldn't be. Can you shed any light on this Eric?
Eric Mc said:I usually take out 400 or 500, depending on the cashmachines which have limits, sometimes less if my account is running dry so on average more than once a week.
Watch out for an attack on "frequent" (such as weekly or monthly) dividend payments.
Which means more than 8 pages of crap to print, write in, add notes, sign, date, check, file made worse by the fact that i really Really REALLY cant stand admin nor paper (except paper money)
I didnt really understand your second post eric 
and will have another read this weekend.
But re; the comments of quarterly dividend payments, I thought every directors salary was supposed to be the minimum amount, ie 400 a month or there abouts. I cant live on that in a week - there is no way I could pay myself quarterly, which my old accountant said I had to do by law
I need to educate myself a little more i think...
and will have another read this weekend. But re; the comments of quarterly dividend payments, I thought every directors salary was supposed to be the minimum amount, ie 400 a month or there abouts. I cant live on that in a week - there is no way I could pay myself quarterly, which my old accountant said I had to do by law
I need to educate myself a little more i think...Don said:
So far we have found it simpler to pony up the loot PAYE. We are currently looking into a Dividend based strategy. Our plan is to pay ourselves PAYE our Tax Allowances and then earn the rest as dividend. One can pay the dividend into the Director's Loan Account and then draw it over time.
Of course there is a cash flow implication to this.
We are having our auditors make up a plan even as we speak. I wouldn't try this without sound professional advice frankly.
Have looked into this. My major concern was the Revenue noticing the sudden drop in payments. If say you were originaly on a salary 50k a year and suddenly went down to 6k a year that would be suspicous. Apart from the rigmoarale of potential investigation they could also potentialy get you under the any scheme which is purley to avoid tax is invalid argument.
The bottom line is the money in your co's account is not yours until it is paid to you, either by salary or dividend.
The correct thing to do would be to pay monies into a personal account in larger amounts and then draw the £400/£500's from there, although this is obviously a burden on cashflow.
The correct thing to do would be to pay monies into a personal account in larger amounts and then draw the £400/£500's from there, although this is obviously a burden on cashflow.
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