distribution of dividends

**malvolio** · 13 August 2014, 10:16

Originally posted by johnplayer View Post

Hi,

I share the dividend income of my ltd company between me and my spouse on a 70/30 ratio.
before making the first payment of dividend I discussed with my accountant for the confirmation of amounts and he told me that I don't have to pay the dividend to my spouse at this time. Just keep paying the 70% to myself until I reach the low tax threshold and then I can start paying the dividend to my spouse.
This does not look right to me as I believe that dividend has to be distributed to all shareholders at the same time.
Can anyone shed some light on this?

Regards
J

Distributed but not necessarily paid. However I can see no reason not to pay them at the same time since you and your spouse have separate tax liabilities and one does not affect the other. You may as well take all the money out until you hit the boundary then stop taking divis for the rest of the year; dumb idea in many ways but if all you want to do is not pay higher rat then there's a hard stop to your income anyway. If the objective is to get money out of the company, then there are better options, such as a pension fund, which take lumps out of your CT liability as well

Also, of course, his approach it guarantees you get a big drop in net income during the year for no reason at all...

Perhaps a better accountant is an option? Try and find one that thinks for a living...

**northernladuk** · 13 August 2014, 10:47

I hope he didn't mention waivers as a possible option going forward.

**TheFaQQer** · 13 August 2014, 10:57

Originally posted by northernladuk View Post

I hope he didn't mention waivers as a possible option going forward.

That's the only way you're going to get round not paying the dividend to all the shareholders, assuming the shares are of the same class of course.

**TheCyclingProgrammer** · 13 August 2014, 11:13

Originally posted by northernladuk View Post

I hope he didn't mention waivers as a possible option going forward.

There's nothing wrong with waivers per se. They can be considered a settlement but remember that's only going to be an issue of it's being done to avoid tax, i.e. the waiving shareholder is a higher rate tax payer is waiving their dividend so they can keep paying dividends to a lower rate payer.

In OPs case their wife would be waiving their dividend so presumably no tax advantage gained. But it's important that OPs accountant ensures the waiver paperwork is done correctly.

Like mal I don't understand why you would make a spouse a shareholder only for then to waive their right to dividends otherwise what's the point?

OP should of course run a mile of the accountant starts recommending waivers in the other direction once they reach the higher rate tax threshold.

TLDR; OPs wife could quite legally waiver her dividends but doing so would be pretty pointless and defeat the object of splitting your shareholding with your spouse.

**Craig at Nixon Williams** · 13 August 2014, 11:28

I am unsure why an accountant would suggest this, as ultimately you should each receive payments in accordance with your respective shareholdings. If there is talk of waivers, or different classes of shares being issued then my advice would be to run a mile.

As malvolio has said, the dividends don’t necessarily need to be paid at the same time, but they should become a liability of the company at the same time so it doesn’t really make sense not to pay them together.

Craig

**ChimpMaster** · 13 August 2014, 12:44

Originally posted by Craig at Nixon Williams View Post

I am unsure why an accountant would suggest this, as ultimately you should each receive payments in accordance with your respective shareholdings. If there is talk of waivers, or different classes of shares being issued then my advice would be to run a mile.

As malvolio has said, the dividends don’t necessarily need to be paid at the same time, but they should become a liability of the company at the same time so it doesn’t really make sense not to pay them together.

Craig

So if the distribution is declared by the company but not physically paid, is it still accountable for personal taxation at this time, or only when physically received by the shareholder?

**Craig at Nixon Williams** · 13 August 2014, 12:50

Originally posted by ChimpMaster View Post

So if the distribution is declared by the company but not physically paid, is it still accountable for personal taxation at this time, or only when physically received by the shareholder?

Good question!

If the dividend is declared by the directors (an interim dividend), the dividend can be revoked at any time until it is paid and therefore the date that it becomes taxable is the date that is is physically paid.

If the dividend is voted by the shareholders (a final dividend, voted at AGM) then it creates an immediate debt to the company and the date that it becomes taxable is then the date that it is voted.

Hope this helps!
Craig

**ChimpMaster** · 13 August 2014, 12:58

Originally posted by Craig at Nixon Williams View Post

Good question!

If the dividend is declared by the directors (an interim dividend), the dividend can be revoked at any time until it is paid and therefore the date that it becomes taxable is the date that is is physically paid.

If the dividend is voted by the shareholders (a final dividend, voted at AGM) then it creates an immediate debt to the company and the date that it becomes taxable is then the date that it is voted.

Hope this helps!
Craig

Good answer, thanks.

So we would fall under the first category, which implies a little extra control over personal taxation. For example, if there is a 50/50 split on shares and Director1 is well under the 40% threshold then he can take the dividend. Director2 has already crossed the 40% threshold this year so the company can declare his 50% shareholding dividend but not physically pay it until such time in the future when he has a lower tax burden.

Sounds a little odd though because the company can forever choose to delay payment of dividends until shareholders have little or no income in a FY....?

**TheCyclingProgrammer** · 13 August 2014, 14:51

Originally posted by Craig at Nixon Williams View Post

Good question!

If the dividend is declared by the directors (an interim dividend), the dividend can be revoked at any time until it is paid and therefore the date that it becomes taxable is the date that is is physically paid.

An extension to the same question...if its declared and immediately credited to the shareholder's loan account, is it considered paid at that point or can the dividend still be revoked? I seem to remember crediting a dividend to a loan account is the same as physically paying it but I suppose you could revoke the dividend, undo the bookkeeping that put the money into the loan account and nobody would be any the wiser...

distribution of dividends