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Accountant advice - Vary dividend payment

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    #11
    Originally posted by eek View Post
    So does your company have any savings at the moment apart from tax?

    Dividends shouldn't be regular income they should represent profit taken on say a quarterly basis when the company knows it has excess capital that can be distributed.
    Why quartlery? Why not monthly, bi monthly or weekly?

    So long as they're paid from profit and there's a realistic and genuine expectation that that position wouldn't change (I.e., you leave enough remaining in the company to service all liabilities for the rest of the year) then I'm yet to see any real evidence that there's an issue with monthly dividends.

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      #12
      Originally posted by vwdan View Post
      Why quartlery? Why not monthly, bi monthly or weekly?

      So long as they're paid from profit and there's a realistic and genuine expectation that that position wouldn't change (I.e., you leave enough remaining in the company to service all liabilities for the rest of the year) then I'm yet to see any real evidence that there's an issue with monthly dividends.
      You don't want profits to be too regular as otherwise HMRC will see it as income (and remember a lot of people including sales staff have a base pay followed by bonus all paid via PAYE).

      And that is the issue here - HMRC are seeing something like income being paid out via dividends rather than PAYE and that is what the OP's accountant dislikes.

      Now granted the risk that HMRC will do anything is small but given how easy it would be to switch to a completely risk free approach it makes sense to do so.
      merely at clientco for the entertainment

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        #13
        Originally posted by vwdan View Post
        Why quartlery? Why not monthly, bi monthly or weekly?

        So long as they're paid from profit and there's a realistic and genuine expectation that that position wouldn't change (I.e., you leave enough remaining in the company to service all liabilities for the rest of the year) then I'm yet to see any real evidence that there's an issue with monthly dividends.
        There isn't. Other than for the reasons I've already given. It's up to you whether or not you think it's a good idea.

        As in so many questions asked around here, just because you can doesn't mean you should. It's being stupid about the basics that's caused most of our problems, from IR35 to the loss of expenses. You want to be treated as a business then behave like one.
        Blog? What blog...?

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          #14
          Originally posted by malvolio View Post
          You want to be treated as a business then behave like one.
          I don't need to behave like the CEO of a multinational to behave like a "business". Plenty of directors of SME's, especially sole directors (Such as the old boutque consultancy I worked at with ~10 staff) will operate in a similar manner. I fail to see how it has any bearing whatsoever on me being in business.

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            #15
            Originally posted by vwdan View Post
            I don't need to behave like the CEO of a multinational to behave like a "business". Plenty of directors of SME's, especially sole directors (Such as the old boutque consultancy I worked at with ~10 staff) will operate in a similar manner. I fail to see how it has any bearing whatsoever on me being in business.
            OK, you fail to see, I don't. Let's simply leave it at that.

            We were asked for reasons for the OP's accountant's advice, which we have given. You may disagree with it, but the idea is not to debate the letter of the law regarding the profit of entrepreneurial effort but to keep out of HMRC's basilisk gaze. That, put simply, is what we've done. Live with it.
            Blog? What blog...?

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              #16
              Originally posted by malvolio View Post
              OK, you fail to see, I don't. Let's simply leave it at that.

              We were asked for reasons for the OP's accountant's advice, which we have given. You may disagree with it, but the idea is not to debate the letter of the law regarding the profit of entrepreneurial effort but to keep out of HMRC's basilisk gaze. That, put simply, is what we've done. Live with it.
              Don't get stroppy because I called you out and you have no actual evidence of your hunches. You posted a bunch of theories dressed as fact - i.e.:

              What you are doing is a likely trigger for HMRC to conclude you aren't running a business but avoiding tax.
              taking regular, unchanging divis regardless of profit means you aren't taking divis but trying to avoid paying tax on what HMRC would rightly see as normal income
              divis are supposed to be exceptional rewards to extract net profits, so taking them like clockwork means they aren't divis at all.
              Despite sounding like it, absolutely none of the above are facts and I can't really find any evidence of them at all. Even HMRC's website doesn't state similar. Is this something that has ever been tested in court, or is just ContractorUK folklaw?

              Edit: The only cases I can find where dividends get classified as "income" involve complex setups to pay employees, not directors paying themselves from their own company that they control.
              Last edited by vwdan; 1 January 2021, 14:30.

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                #17
                There is no evidence that regular dividend payments of exact amounts are a problem. First, the dividend frequency and amounts would only become apparent under investigation (only the total amount is reported in your SATR). Second, a legal dividend is a legal dividend. It is simply wrong to think that dividends are going to be reclassified as income purely on the basis of amount and frequency when they have been legally declared and there is case law to prove it. In short, providing you have the correct paperwork, it is a non-issue.

                That said, I don't take regular dividends myself because, well, why bother with the faff?

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                  #18
                  Originally posted by suggy1982 View Post
                  In a recent review with my accountant she suggested that I should vary the amount of my dividends each month and vary the date I pay it in case HMRC review my accounts.
                  As you've written it, that's silly. If something is earnings then tweaking the dates of when it is paid won't change that. If you pay a dividend at 2pm on each Friday then the fact that it is paid at a regular time won't make it earnings. But if someone submitted a time sheet and the amount owed was then paid as a dividend then that may (or may not) mean the amount is earnings.

                  You'd be better of focusing on making sure that what is paid can actually be shown to be a dividend (e.g. the paperwork shows that the directors have declared each dividend, that there are sufficient distributable reserves, etc). If it's all a bit ambiguous then HMRC are more likely to want to take the point that some or all the amounts paid are earnings. For example, if a standing order is set up for £7,000 per month and after the end of the year the accountant say that £10,000 was salary, £40,000 was a dividend and the rest was a loan then that will more likely be challenged as there is no contemporaneous evidence to show that any amount was a dividend when paid.

                  If the company has different classes of shares (e.g. so-called alphabet shares) then you have other potential issues that can create an employment income tax charge.

                  Comment


                    #19
                    Originally posted by vwdan View Post
                    Why quartlery? Why not monthly, bi monthly or weekly?

                    So long as they're paid from profit and there's a realistic and genuine expectation that that position wouldn't change (I.e., you leave enough remaining in the company to service all liabilities for the rest of the year) then I'm yet to see any real evidence that there's an issue with monthly dividends.
                    You are exactly right in what you say, but Mal is right in what he says. Both methods are right. Yes he can pay himself daily, weekly, monthly, whatever, it won't matter a jot. But Mal is right business wouldn't be paying it monthly like wage andt he OP is missing this. Just depends on what side of the fence you are, there is no right and wrong..

                    That said... I do believe if the OP understood what he was doing he'd move up a level and understand things slightly differently so wouldn't bump in to these problems. You know all about this and quite rightly say he can pay when he wants. I suspect the OP doesn't. So... If the OP starts to act and think like a business and understands why and when he can pay he'll learn.. and then he can make a proper decision based on his situation and do what he wants. At this point I don't think he is. He's treating his divi's like wage. It's mentality situation he needs to get over as Mal says and then he can do what you say..
                    'CUK forum personality of 2011 - Winner - Yes really!!!!

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                      #20
                      Originally posted by northernladuk View Post
                      You are exactly right in what you say, but Mal is right in what he says. Both methods are right. Yes he can pay himself daily, weekly, monthly, whatever, it won't matter a jot. But Mal is right business wouldn't be paying it monthly like wage andt he OP is missing this. Just depends on what side of the fence you are, there is no right and wrong..

                      That said... I do believe if the OP understood what he was doing he'd move up a level and understand things slightly differently so wouldn't bump in to these problems. You know all about this and quite rightly say he can pay when he wants. I suspect the OP doesn't. So... If the OP starts to act and think like a business and understands why and when he can pay he'll learn.. and then he can make a proper decision based on his situation and do what he wants. At this point I don't think he is. He's treating his divi's like wage. It's mentality situation he needs to get over as Mal says and then he can do what you say..
                      I do agree here, in that it's a situation borne out of just not thinking and acting right.

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