Accountant advice - Vary dividend payment

[suggy1982]

Hi,

For the last 18 months I've always paid myself the same dividend amount each month and paid it to myself each month on the same date as my salary from my ltd co.

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. I was just wondering if anyone else had received this advice? Or if they did vary their dividend amount/payment date each month?

Personally I don't think HMRC are under any illusion that directors pay themselves dividends as a form of income/salary because of the lower tax rate. They're more likely to look at the engagement with the client for IR35 status.

Thanks,

[malvolio]

Depends how much you want to trigger an investigation really. What you are doing is a likely trigger for HMRC to conclude you aren't running a business but avoiding tax.

And what happens if at year end you don't have enough profit to cover you already paid dividends?

[suggy1982]

Thanks for the reply.

Why would this trigger an investigation? I am not being defensive by asking that, I want to hear other opinions on this. I know many other IT contractors who operate their ltd co. in this way and take the majority of their income through dividends.

Regarding profit, I set aside funds for taxes and other liabilities so the dividends each month is only paid from the remaining profit.

[eek]

Thanks for the reply.

Why would this trigger an investigation? I am not being defensive by asking that, I want to hear other opinions on this. I know many other IT contractors who operate their ltd co. in this way and take the majority of their income through dividends.

Regarding profit, I set aside funds for taxes and other liabilities so the dividends each month is only paid from the remaining profit.

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.

[suggy1982]

Yes the company has savings so the dividends is paid from the excess profit after tax.

[eek]

Yes the company has savings so the dividends is paid from the excess profit after tax.

So pay yourself a large dividend (3 months worth) and then don't pay yourself another dividend for 3 months.

Problem solved and you have more money...

[malvolio]

Yes the company has savings so the dividends is paid from the excess profit after tax.

But dividends are supposed to be paid once the profit position for the year is known, which means knowing how much off your gross is supposed to be available. If you contract gets canned tomorrow - it happens - then what? CT and VAT are still due, as are RTI-based salary payments.

Secondly, 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. Yes, I know that there is nothing illegal about it, you can take them daily, ut the idea is to behave like a business or risk HMRC paying attention (which they will, that is why they use RTI and iXBRL).

But this is not new news anyway, so what else don't you know? Are all your divis properly minuted for example?

And, sad to say, your accountant is correct. Perhaps try listening to them...

[northernladuk]

If you've got enough retained profit in the company just divi yourself the max amount for the year on the 7th of April and invest it. Its doing nothing sitting in the company bank.

[malvolio]

If you've got enough retained profit in the company just divi yourself the max amount for the year on the 7th of April and invest it. Its doing nothing sitting in the company bank.

True but irrelevant to the current discussion.

[Scruff]

Don't listen to Pub Accountants.

IANYA.