Paying myself before latest invoice has been paid

**northernladuk** · 17 February 2016, 10:28

What did your accountant say?

Were they also surprised that being paid only 2 weeks later is such a problem? Did they ask what on earth you are going to do if you get binned tomorrow or have to spend some time on the bench?

**TheFaQQer** · 17 February 2016, 10:30

You can only pay a dividend from profit or retained profit. You can pay salary from anywhere. Or you could take a loan from the company and repay it via salary or dividend in the future.

Your accountant is your friend here.

**BrilloPad** · 17 February 2016, 10:32

Originally posted by virtuesoft View Post

My client has changed their accounting policy. I used to get paid around the 15th of the month, but I've been told that it will now be on the 28th. This has taken me by surprise. I have a mortgage payment and various other bills to pay before the 28th, so I'm in need of the money before then.

My company has around £30k in the bank. The entire amount is to cover taxes, the vast majority of which is Corporation Tax, which is due in July. Can I pay myself my salary and dividend for this month before my latest invoice has been paid by my client? I'm not sure if this is common practice or not.

You can do it. You are not getting a loan.

However you need a bigger war chest. You need to cut back on your dividends for a while.

Don't make it a common practice. If you don't get paid by the client, and then cannot pay corporation tax, you are in the poo.

That is why it is not common practice.

**virtuesoft** · 17 February 2016, 10:40

Originally posted by northernladuk View Post

What did your accountant say?

Were they also surprised that being paid only 2 weeks later is such a problem? Did they ask what on earth you are going to do if you get binned tomorrow or have to spend some time on the bench?

I use FreeAgent for my day to day accounting. I only use an accountant to process my end of year accounts. My accounts are very simple and this is the first time in over 5 years I've actually needed the advice of an accountant.

In response to your other question. Yes, I have savings, but they're all in investments that I do not want to liquidate. I did have cash on hand but I bought a new house 3 months ago which has depleted my funds at present. I will build my available cash back up but I'm sure you can appreciate that everyone goes through different stages in their life where money is more readily available or not. Thanks for your concern though.

**virtuesoft** · 17 February 2016, 10:43

Originally posted by TheFaQQer View Post

You can only pay a dividend from profit or retained profit. You can pay salary from anywhere. Or you could take a loan from the company and repay it via salary or dividend in the future.

Your accountant is your friend here.

Originally posted by BrilloPad View Post

You can do it. You are not getting a loan.

However you need a bigger war chest. You need to cut back on your dividends for a while.

Don't make it a common practice. If you don't get paid by the client, and then cannot pay corporation tax, you are in the poo.

That is why it is not common practice.

Thank you for your advice.

**WordIsBond** · 17 February 2016, 11:13

The reason you can do it is because the tax point for your invoice is the invoice date. So as of the day you invoice them, that income is booked (even though not received yet). That means it is legal to pay dividends based on that income, even if you are "borrowing" the cash from your corporation tax savings to do it.

It is not good practice to do frequently, however, if the only cash you have available is allocated to corporation tax or some other obligation. As others have said, you should work to build up a bigger reserve. Also, if you are going to do without an accountant, you need to spend some time getting a lot smarter about accountancy. If you had to ask the question you asked her, you don't know enough to be doing without an accountant.

Kind of a side thing: it may be advantageous for some to pay dividends, out of CT savings, on unpaid invoices, in the first few days of April this year. Invoice on the first, book the income, and borrow from your CT savings to get the cash to pay dividends against that invoice's income. One way to bring dividends forward before the new tax hits. As long as you are paying attention to the tax bands, this may be worth considering. But that's a one-off driven by tax considerations, not a repeated practice.

**LondonManc** · 17 February 2016, 11:17

If you're at absolute bare bones, you've overpaid dividends.

In general, it is up to you on what day of the month your company salary run happens; invoices being received is irrelevant as these will vary from client to client and are generally not cause-and-effect linked to salary anyway (barring if you've had no income you cannot pay salary obviously).

They're the two halves of the coin; revenue and expenditure and must simply balance up in the accounts, not be timed to run in parallel.

**SimonMac** · 17 February 2016, 11:27

Have you raised the invoice already, and as such is an outstanding debtor to you?

Are you paying yourself salary or dividend?

Also what does your contract say about payment terms, are they in breach changing the way you get paid or did you accept the change of terms?

I think it will be a case of 99.99% of the time people will get away with doing what you want to do, as long as in July you have the funds to cover your liabilities, but the question I need to ask, if you are using next months money to pay this month, what are you going to do between now and July? Are you working on the proviso that the invoices will drop in every month and you can keep your head above water while you do, what happens if you get canned and you have no new money coming in?

**NotAllThere** · 17 February 2016, 12:10

Originally posted by SimonMac View Post

...Also what does your contract say about payment terms, are they in breach changing the way you get paid or did you accept the change of terms?

This.

Paying myself before latest invoice has been paid