Directors current account and share dividends
Discussion
Each year we vote ourselves a share dividend equal to the annual net profits. We never in fact take them all because of a dislike for paying tax and the surplus stays in the company.
I notice in our accounts that there is an entry of 'directors current accounts' which a decent amount of money indicated.
This year things are looking tougher already and we may not make enough to take our dividends up to theusual amount.
Are the 'directors current accounts' a source of topping up thapose dividends without paying tax? If so, do the board minutes need to record that fact?
If the company has been allocating dividends to the directors/shareholders but the directors have not drawn all the money they have been allocated, then their "current/loan accounts" should be in credit. This means that the individuals should be able to draw the cash out now without being subject to any further personal tax charge.
In theory, they should have paid whatever tax was due on those dividends already as they should have been returned by the individuals in their persoanal Self Assessment tax returns in the tax year in which the dividend was allocated to the shareholder/director and the credit transferred to their loan account.
Of course, whether they were liable to Income Tax on those dividends would have been dependent on whether the individuals were higher rate tax payers in the year the dividend was received.
In theory, they should have paid whatever tax was due on those dividends already as they should have been returned by the individuals in their persoanal Self Assessment tax returns in the tax year in which the dividend was allocated to the shareholder/director and the credit transferred to their loan account.
Of course, whether they were liable to Income Tax on those dividends would have been dependent on whether the individuals were higher rate tax payers in the year the dividend was received.
Eric Mc said:
If the company has been allocating dividends to the directors/shareholders but the directors have not drawn all the money they have been allocated, then their "current/loan accounts" should be in credit. This means that the individuals should be able to draw the cash out now without being subject to any further personal tax charge.
In theory, they should have paid whatever tax was due on those dividends already as they should have been returned by the individuals in their persoanal Self Assessment tax returns in the tax year in which the dividend was allocated to the shareholder/director and the credit transferred to their loan account.
Of course, whether they were liable to Income Tax on those dividends would have been dependent on whether the individuals were higher rate tax payers in the year the dividend was received.
So, I can use that account to 'top up' to my usual level (I take about £30K in dividends and £6K in PAYE)? I have never told HMRC that the dividens were =voted, just about what I actually took.In theory, they should have paid whatever tax was due on those dividends already as they should have been returned by the individuals in their persoanal Self Assessment tax returns in the tax year in which the dividend was allocated to the shareholder/director and the credit transferred to their loan account.
Of course, whether they were liable to Income Tax on those dividends would have been dependent on whether the individuals were higher rate tax payers in the year the dividend was received.
You should have declared in the Self Assessment return the divs actually "voted" - even if the cash was not drawn.
By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
Eric this solidifying of the dividend in the appropriate year, I assume this is beneficial so that one can maximise their allowance while as a lower-rate taxpayer, so that in the future if they were to move to the higher-rate they have made the most of it, even if they did not actually draw the amount out of the company?
Is it best to do this even if the company might need to use the balance in the near future? i.e. always maintain a positive director's loan account?
Can the director charge interest on the positive balance?
Is it best to do this even if the company might need to use the balance in the near future? i.e. always maintain a positive director's loan account?
Can the director charge interest on the positive balance?
Eric Mc said:
You should have declared in the Self Assessment return the divs actually "voted" - even if the cash was not drawn.
By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
November 30th. My accountant does my personal tax return too. I wonder if he has declared it? I certainly haven't had any kind of tax bill for it, probably because he only knows what I took, not what it was agreed we could have. Also we vote ourselves dividends based on what we expect to make in any year, which may be more, or less than we actually do make.By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
Seany88 said:
Eric this solidifying of the dividend in the appropriate year, I assume this is beneficial so that one can maximise their allowance while as a lower-rate taxpayer, so that in the future if they were to move to the higher-rate they have made the most of it, even if they did not actually draw the amount out of the company?
Is it best to do this even if the company might need to use the balance in the near future? i.e. always maintain a positive director's loan account?
Can the director charge interest on the positive balance?
Exactly - that is why it is done that way. The Revenue will accept that the dividend is "paid" by the posting of the relevant credit entry to the director's account. It is at this point that the dividend becomes "due and payable" to the director.The director is not obliged to draw it out in cash on that date. They may chose to leave the amount owing to them - especially if the company needs some cash in their bank account.Is it best to do this even if the company might need to use the balance in the near future? i.e. always maintain a positive director's loan account?
Can the director charge interest on the positive balance?
It is illegal for a director's current account to go "negative" so keeping the account positive is essential.
Brown and Boris said:
Eric Mc said:
You should have declared in the Self Assessment return the divs actually "voted" - even if the cash was not drawn.
By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
November 30th. My accountant does my personal tax return too. I wonder if he has declared it? I certainly haven't had any kind of tax bill for it, probably because he only knows what I took, not what it was agreed we could have. Also we vote ourselves dividends based on what we expect to make in any year, which may be more, or less than we actually do make.By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
If the dividends declared were not enough to go into the Higher Rate bracket, then you will not have been required to make any tax payments on the dividends received.
Also, there can be some "wriggle room" if the dividends shown in a set of accounts are actually "final", "interim" or "proposed".
Edited by Eric Mc on Monday 12th January 10:34
Eric Mc said:
Brown and Boris said:
Eric Mc said:
You should have declared in the Self Assessment return the divs actually "voted" - even if the cash was not drawn.
By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
November 30th. My accountant does my personal tax return too. I wonder if he has declared it? I certainly haven't had any kind of tax bill for it, probably because he only knows what I took, not what it was agreed we could have. Also we vote ourselves dividends based on what we expect to make in any year, which may be more, or less than we actually do make.By doing that, you solidify the div in the tax year it is voted. The crediting of the value of the div to your Director's Account is proof that the dividend is now yours and the income tax due on it (if any) is payable.
What is the financial year end of your company?
If the dividends declared were not enough to go into the Higher Rate bracket, then you will not have been required to make any tax payments on the dividends received.
Also, there can be some "wriggle room" if the dividends shown in a set of accounts are actually "final", "interim" or "proposed".
Edited by Eric Mc on Monday 12th January 10:34
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