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Shareholder split and issues with accountancy firm

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    #11
    Originally posted by HeadlessChicken View Post
    Thanks for some useful tips.

    To some degree I do agree that the issue is just not payment for FY 12-13 but sorting out paper work as well - something I was going to get corrected.

    All dividends drawn were documented and declared to accountancy on a monthly bases - for 'review and record keeping'. I am talking about normal shares only.

    The statement regarding 'degree of responsibility' begs a question - should I question the advice provided by accountant? None of the email conversations or documents provided at the time of introducing a new shareholder mention the need of splitting each dividend between the shareholders in accordance of the split structure. This is also something that the new accountant and senior manager reviewing the case has confirmed verbally over phone.

    I do accept that my knowledge of shareholder split and dividend withdrawal has increased since the discovery of this issue. Unfortunately this has come at an expense of time and money.

    Eventually I'll take this as an experience and move on but was keen to know if there are others who might be affected - as the firm serves many clients and the (ex)accountant would definitely have had many clients.
    What did you think the 72% v 18% share split meant?

    Sorry, but I find it incredibly difficult to believe the accountant did not explain this to you. On the other hand, maybe he thought it was totally obvious.

    Who suggested the figures of that share split?

    Comment


      #12
      And who is the other shareholder?

      Comment


        #13
        The best person to advise you on fixing this going forward is your new accountant. Personally, here's one approach I'd consider (others might not think this is a good idea):

        Depending on the amounts involved, it *may* simplify things to treat all of your payments in the year to date as a loan to both shareholders and then pay off as much of the loans as possible with one single, properly documented and proportionally split final dividend - as much as your company can afford to pay out (this will depend on retained profit in the company).

        This will sort out the dividend legality/paperwork issue as there will just be one single final dividend. You will have to account for interest or BIK tax on the loan though if this exceeds £5k which it probably will.

        If there isn't enough retained profit in the company to cover off both loans, then you should then aim to pay off the remaining loan within 9 months of the end of your company year, or you will have to pay corporation tax on the outstanding loan amount (you will get this back 9 months after the year in which you pay it off though). You can pay off the remainder with further dividends as long as the company has the reserves.

        Whether this option is available to you depends on timing, when your company year ends etc. It may be far too late to do this.

        The main cons of this approach are:

        * Dealing with interest on the loan or paying a BIK tax on the interest free loan
        * Having to pay the corporation tax charge if you're not able to pay the loan off within the 9 months
        * Having to potentially use up all of your company reserves (your war chest) to rectify the situation

        The pros:

        * All the messy dividends go away as they were never dividends, just loans.
        * If you do it properly, you can be certain that the single final dividend is legit by only declaring a dividend that the company has enough reserves to pay and that they are split properly between both shareholders (you should ensure that any excess after the other shareholders loan account is covered is paid to *them* directly - it's not your money)

        I'm not an accountant, so this is just one possible idea and you shouldn't do anything without speaking to your accountant first. If other accountants on here think this is all a terrible idea then I'm sure they will be quick to say and I won't argue, but to me it seems preferable to your current mess.
        Last edited by TheCyclingProgrammer; 21 January 2014, 13:45.

        Comment


          #14
          Originally posted by TheCyclingProgrammer View Post
          The best person to advise you on fixing this going forward is your new accountant. Personally, here's one approach I'd consider (others might not think this is a good idea):

          Depending on the amounts involved, it *may* simplify things to treat all of your payments in the year to date as a loan to both shareholders and then pay off as much of the loans as possible with one single, properly documented and proportionally split final dividend - as much as your company can afford to pay out (this will depend on retained profit in the company).

          This will sort out the dividend legality/paperwork issue as there will just be one single final dividend. You will have to account for interest or BIK tax on the loan though if this exceeds £5k which it probably will.

          If there isn't enough retained profit in the company to cover off both loans, then you should then aim to pay off the remaining loan within 9 months of the end of your company year, or you will have to pay corporation tax on the outstanding loan amount (you will get this back 9 months after the year in which you pay it off though). You can pay off the remainder with further dividends as long as the company has the reserves.

          Whether this option is available to you depends on timing, when your company year ends etc. It may be far too late to do this.
          This is the approach I had suggested to take - something that the new accountant and manager also agree. Thanks for highlighting but the retained profit and loan above 5k should not be an issue in this instance.

          Comment


            #15
            Who's the other shareholder? Spill the beans!

            Otherwise us cynical lot will assume its tax evasion...

            Comment


              #16
              Originally posted by TheCyclingProgrammer View Post
              The main cons of this approach are:

              * Dealing with interest on the loan or paying a BIK tax on the interest free loan
              * Having to pay the corporation tax charge if you're not able to pay the loan off within the 9 months
              * Having to potentially use up all of your company reserves (your war chest) to rectify the situation
              Another con depends on the timing of all this. If you move everything to being a loan, then it clears up the paperwork neatly, but you may well miss out on part / all of your threshold up to the higher rate tax in that year. You then have to take a dividend to be able to repay the loan, which uses up a LOT of this tax year's money, and you have nothing to live off. You then need to take another £34k dividend out of the business (split 82:18), which pushes you into the higher rate, and you end up having to pay lots of tax.

              Although it's not as neat, you could pretend that part of the dividend was a loan (which is what the accountant seems to be recommending) which then gets repaid by a dividend in this tax year. The danger with that is that if there is an investigation, you would need to explain why the one payment at a given date covered both a dividend and a loan, etc etc.

              From here, I would:

              1) Try to get the accountancy to agree to six months free (nearly half the outstanding tax bill).
              2) Get HRMC to reduce the payment on account to a small amount (£200 ish, maybe lower) just in case you mess something up next year - if you need it on account and you haven't paid it, you get charged with an interest bill; if you pay it and you don't need it, they pay you interest.
              3) Treat everything correctly from now on and sort out the paperwork
              4) Tread more carefully with how you run your business. If you have a question, ask it. If they will not answer it, leave.
              Originally posted by MaryPoppins
              I hadn't really understood this 'pwned' expression until I read DirtyDog's post.

              Comment


                #17
                Originally posted by stek View Post
                Who's the other shareholder? Spill the beans!

                Otherwise us cynical lot will assume its tax evasion...
                Silence speaks volumes, surprised there's no pile on here...

                Comment


                  #18
                  Originally posted by DirtyDog View Post
                  Another con depends on the timing of all this. If you move everything to being a loan, then it clears up the paperwork neatly, but you may well miss out on part / all of your threshold up to the higher rate tax in that year. You then have to take a dividend to be able to repay the loan, which uses up a LOT of this tax year's money, and you have nothing to live off. You then need to take another £34k dividend out of the business (split 82:18), which pushes you into the higher rate, and you end up having to pay lots of tax.
                  Yes, I wasn't necessarily trying to think of the most tax efficient solution; TBH I think OP should prioritise fixing the situation as cleanly as possible even if it costs him more in tax and should think of the extra tax as a tax on not running his/her business carefully. Or maybe that's a bit harsh.

                  Comment


                    #19
                    Originally posted by stek View Post
                    Silence speaks volumes, surprised there's no pile on here...
                    Nobody would be saying anything that hasn't been covered a million times before...

                    Comment


                      #20
                      Originally posted by TheCyclingProgrammer View Post
                      Yes, I wasn't necessarily trying to think of the most tax efficient solution; TBH I think OP should prioritise fixing the situation as cleanly as possible even if it costs him more in tax and should think of the extra tax as a tax on not running his/her business carefully. Or maybe that's a bit harsh.
                      I concur. Pay the money, and see what you can get out of the accountant. Push for six months and be grateful for what you get.
                      Originally posted by MaryPoppins
                      I hadn't really understood this 'pwned' expression until I read DirtyDog's post.

                      Comment

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