Personal Self-assessment: Dividend declared in one financial year and paid in another

[Wanderer]

An interim dividend declared by the director(s) is treated for tax purposes as the date it is paid, rather than when the meeting took place.

I'm still a bit confused.

Consider the scenario where a director (the sole shareholder of a LTD company) declares an interim dividend on the 1st April 2013, writes up the meeting minutes/dividend vouchers and duly makes a book keeping entry to show the dividend as credited to the "director's loan account" (where the director's loan account is of course not a real bank account, just a book keeping entry). On the 1st June 2013, the director finally gets around to transferring the dividend from the company account into their personal bank account.

What is the date the interim dividend was "paid"?
Which self assessment tax year does this dividend fall into?

[TheCyclingProgrammer]

I'm still a bit confused.

Consider the scenario where a director (the sole shareholder of a LTD company) declares an interim dividend on the 1st April 2013, writes up the meeting minutes/dividend vouchers and duly makes a book keeping entry to show the dividend as credited to the "director's loan account" (where the director's loan account is of course not a real bank account, just a book keeping entry). On the 1st June 2013, the director finally gets around to transferring the dividend from the company account into their personal bank account.

What is the date the interim dividend was "paid"?
Which self assessment tax year does this dividend fall into?

Pretty sure it's considered paid once its journalled to the DLA.

[Greg@CapitalCity]

What is the date the interim dividend was "paid"?
Which self assessment tax year does this dividend fall into?

You mean for tax purposes right? It was paid on 01 Apr 2013, and so falls into the 2012/13 tax year. There is a good article over at AccountingWeb (Dividends checklist: Get the details right | AccountingWEB) which covers the main points.

[Martin at NixonWilliams]

Can't an interim dividend can be considered as "paid" by means of journalling the amount to the director's loan account (and then withdrawn later) anyway, meaning an interim dividend can always be treated as paid on the date it was declared if you update your books accordingly?

According to HMRC's guidance, yes, though I have trawled through the legislation before and I don't believe this particular detail is stated in the relevant acts. HMRC state that:

'A dividend is not paid and there is no distribution, unless and until the shareholder receives money or the distribution is otherwise unreservedly put at their disposal, perhaps by being credited to a loan account on which the shareholder has the power to draw'

The reason interim dividends are only considered for tax purposes when actually paid is because they can be varied or rescinded by the board before they are actually paid.

As with a lot of things, I don't believe HMRC's guidance or the relevant acts are written in a way that makes sense for contractor companies. For a one man limited company, my opinion is that the interim dividend would be treated as being paid at the point it is declared, simply because you have clear access to the money (it is unreservedly put at your disposal) - It is not as if there are other directors on the board that can vote to rescind or amend the dividend.

I'm still a bit confused.

Consider the scenario where a director (the sole shareholder of a LTD company) declares an interim dividend on the 1st April 2013, writes up the meeting minutes/dividend vouchers and duly makes a book keeping entry to show the dividend as credited to the "director's loan account" (where the director's loan account is of course not a real bank account, just a book keeping entry). On the 1st June 2013, the director finally gets around to transferring the dividend from the company account into their personal bank account.

What is the date the interim dividend was "paid"?
Which self assessment tax year does this dividend fall into?

Following the above, assuming you are the sole director and shareholder of the company I believe the dividend would have a tax point of 1st April 2013 and so would safely fall into 2012/13 for self-assessment purposes.

I hope this helps.

Martin

[ASB]

In HMRCs guidance they use the term "enforceable debt". From: CTM20095 - ACT: General: Notes on company law aspects of dividends

"The significance of this in the present context is that a final dividend which has been properly declared and which does not specify a date for payment creates an immediately enforceable debt. If a final dividend is declared under the terms of a resolution that states that it is payable on a future date (a fairly common occurrence for quoted companies) then the debt is enforceable, and the dividend is due and payable, only on that later date. An interim dividend, on the other hand, can be varied or rescinded at any time before payment and can therefore only be regarded as “due and payable” when it is actually paid. Potel v CIR 46TC658 contains a clear exposition of this point, particularly at page 669."

That would seem to imply that it is the physical payment of it that matters. However in this context "paid" does not necessarily mean physically handed over to the shareholder. e.g.

"In the case of an interim dividend (which does not create an enforceable debt and which can be varied or rescinded prior to payment), payment is only made when the money is placed unreservedly at the disposal of the directors/shareholders as part of their current accounts with the company. So, payment is not made until such a right to draw on the dividend exists (presumably) when the appropriate entries are made in the company's books."

But not forgetting:-

"If, as may happen with a small company, such entries are not made until the annual audit, and this takes place after the end of the accounting period in which the directors resolved that an interim dividend be paid, then the “due and payable” date is in the later rather than the earlier accounting period."

So, in terms of the OP I would read it as:-

1) If it was a final dividend then it was paid on 05/04/13
2) If it was an interim then it was paid on the date the accounting entries were made (assuming they have been made)
3) The latest date for this would be 15/04/13

I suppose you could get into an interesting discussion as to whether the accounting entries are made upon the production of the voucher. (e.g. you notify the accountant if you don't do you own book keeping), and when the account gets "round to it". Note HMRC's use of the word "presumably".

[VectraMan]

I asked this before, and have been told contradictory things by different experts, just as in this thread. Trying to draw a distinction between directors' meetings and shareholders' meetings is pretty ridiculous in a company of only one director and one shareholder. And in practice, what's the difference between a final dividend and interim dividend? I only ever filled out the one form.

I'd be inclined to just do whichever suits your situation best, and in the extremely unlikely event that anybody ever queries it, you can probably point at lots of expert advice to show why you believed that to be true.

[Martin at NixonWilliams]

I asked this before, and have been told contradictory things by different experts, just as in this thread. Trying to draw a distinction between directors' meetings and shareholders' is pretty ridiculous in a company of only one director and one shareholder. And in practice, what's the difference between a final dividend and interim dividend? I only ever filled out the one form.

I'd be inclined to just do whichever suits your situation best, and in the extremely unlikely even that anybody ever queries it, you can probably point at lots of expert advice to show why you believed that to be true.

I agree - In practice I don't see this ever being an issue for a one man contractor company.

To avoid any possible complications, however unlikely this may be, the easiest thing to do is ensure the dividend paperwork and corresponding payment are made in the same tax year.

[TheCyclingProgrammer]

This is of course made much easier if you use an online bookkeeping tool that generates dividend vouchers and paperwork for you.

When I declare a dividend using FreeAgent, it's usually paired with a corresponding bank account entry; alternatively FreeAgent will generate minutes and vouchers for me if I create the appropriate journals to the DLA.

So in short, it's not possible for me to have a declared dividend without a corresponding bank payment or DLA journal unless I declare the dividend and draw up the paperwork myself outside of FreeAgent.

Of course, there's nothing technically stopping me from doing this stuff retrospectively (e.g. declare a dividend for the last day of the tax year several weeks into the next tax year) and dating them accordingly. I suspect HMRC wouldn't be happy with that but how they would ever know if you've done this, I have no idea.

[Greg@CapitalCity]

To avoid any possible complications, however unlikely this may be, the easiest thing to do is ensure the dividend paperwork and corresponding payment are made in the same tax year.

I concur.

[Sockpuppet]

"If, as may happen with a small company, such entries are not made until the annual audit, and this takes place after the end of the accounting period in which the directors resolved that an interim dividend be paid, then the “due and payable” date is in the later rather than the earlier accounting period."
I suppose you could get into an interesting discussion as to whether the accounting entries are made upon the production of the voucher. (e.g. you notify the accountant if you don't do you own book keeping), and when the account gets "round to it". Note HMRC's use of the word "presumably".

I'd be interested on this. I paid a dividend to myself but I only do my paperwork every 3 months. So the entry into the books was in the year before (PAYE) and the "entry" was in the year after.

Now I say "entry" as I produced div vouchers at the time and filed them into my company records. I then put them into my company books which constitutes a fag packet.

Then every 3 months I transfer entries from fag packet into sage. So the entry was made in the correct year into the first version of my books, just I computerise them every 3 months.