Advice on dividends

[genius]

I asked my accountant BASED ON RESEARCH ID ALREADY DONE ON DIVIDENDS and he said keep in about 20%. I like to be precise so I came here for more advice. He didn't give me an exact answer unfortunately.

I think my question is valid - whether I am considering profits from day 1 or an annual projection. Sorry I can't make it any more intelligent for you - although I admit in my opening post, I didn't go into sufficient detail regarding my query.

[Scruff]

I asked my accountant BASED ON RESEARCH ID ALREADY DONE ON DIVIDENDS and he said keep in about 20%. I like to be precise so I came here for more advice. He didn't give me an exact answer unfortunately.

I think my question is valid - whether I am considering profits from day 1 or an annual projection. Sorry I can't make it any more intelligent for you - although I admit in my opening post, I didn't go into sufficient detail regarding my query.

Keep 20% plus the 13.5% Flat Rate VAT (14.5% in second year trading), as long as it remains unpaid - this is the prudent amount (very roughly speaking). Engage an Accountant, who specialises in Contractors. Don't cock it up at the beginning of your contracting career. If you do, it is a case of "Fly now, pay later", invariably you will be in the "100 Acre Wood" by then

[SueEllen]

I asked my accountant BASED ON RESEARCH ID ALREADY DONE ON DIVIDENDS and he said keep in about 20%. I like to be precise so I came here for more advice. He didn't give me an exact answer unfortunately.

I think my question is valid - whether I am considering profits from day 1 or an annual projection. Sorry I can't make it any more intelligent for you - although I admit in my opening post, I didn't go into sufficient detail regarding my query.

Your accountant is not your financial director so will not tell you how to run your business but will give you guidelines.

If you are unable to read and understand all the first timers guides available on the internet then you should use an umbrella.

I can point you to some other useful resources - sjd accountancy website and ipse (Membership body for contractors, independent professionals and freelancers). As you know how to use Google you should be able to find their sites and the relevant information.

Also you shouldn't be taking all the money you can out of your company. You need to take the minimum out until such time you have money to cover periods when you are not in a contract.

[genius]

I'm not using an umbrella. Thanks though.

Edit: and the SJD guide to dividends is much better than the one here. Thanks for that.

[SueEllen]

You are aware of the dividend tax? And also how you are suppose to keep back money to pay for your personal tax? If not Google.

[genius]

Yes I have read of the changes to dividend taxes starting this month.

I'm not sure what personal tax obligations I will have - unless dividend tax is considered personal. My PAYE salary won't be high enough for tax.

[genius]

From the HMRC web site:

To pay a dividend, you must:

hold a directors’ meeting to ‘declare’ the dividend
keep minutes of the meeting, even if you’re the only director

Dividend paperwork

For each dividend payment the company makes, you must write up a dividend voucher showing the:

date
company name
names of the shareholders being paid a dividend
amount of the dividend
the amount of the ‘dividend tax credit’


Few questions on this. Does everyone on here really hold a meeting with themselves and take minutes? And also, the mention of 'tax credits' on the voucher - I assume this is no longer relevant for this tax year.


Also I found an answer to my initial question which no one here could confirm for me. Here it is for your own information. If it's good enough for Paul Scholes, it's good enough for me.

“A company may only make a distribution out of profits available for the purpose”. A dividend can only be paid if there are sufficient distributable profits out of which the payment can be made. If a dividend is paid that proves to be in excess of this profit or if made out of capital or even made when there are losses that exceed the accumulated profits then this is termed ‘ultra vires’ and is, in effect, ‘illegal’.

"Therefore the financial status of the company needs to be considered each time a dividend payment is made which can prove difficult with the payment of interim dividends unless the company is VAT registered and the accountant does the VAT return calculations. Unusually HMRC appears to appreciate the problem, the Corporation Tax Manual 20095 (17) states that accounts only need to be detailed enough to enable “a reasonable judgement to be made as to the amount of the distributable profits” as at the date of payment.

If the directors correctly prepare basic interim accounts and a dividend is paid on the basis of those accounts then that will be deemed lawful, even if, when the final annual accounts, prepared at a later date, show that at the time there was an insufficient amount available as for distributable profits.

s Paul Scholes said under the question headed Interim Dividends:“It is actually so easy to do and you can scribble on a piece of scrap paper, turnover, less expenses, less 21% to give you available for divs, so, given the risks of not doing it, why would you not do so?"

[SueEllen]

Hopefully someone else will come along to spoon feed you shortly...

[genius]

You say that but I bet you didn't know minutes aren't compulsory and unless an actual meeting with YOURSELF took place, are not required.

Anyway I'm done. I KNOW EVERYTHING NOW.

Hope you've all learnt something tonight guys, cheers.

[northernladuk]

Also I found an answer to my initial question which no one here could confirm for me. Here it is for your own information.

That could be because it's so basic you can find it with a 30 second search on google? It could be that your poor attitude is the reason why no one did it for you and we don't need it for our information. We know.

I hope your ability to go find the absolute fundamentals of what you do get better and your not going ask every basic question on here. People help for free bit will tire very quickly.