Anyone bring forward dividends to the current tax year?

[d000hg]

i.e. taking as dividends money in yourCo's account to the point you do not have enough for tax liabilities, on the basis that you'll have earned enough to cover it by the time the tax is due?

Clearly, the reason being to avoid the dividend tax at the cost of a slight risk (if you get canned in April for instance).

[northernladuk]

But that would mean that you would be Divi'ing money that is not profit? Or is there some fancy accounting black magic to get round this? You mean on the invoice declared even though the money has not been collected yet?

[stek]

i.e. taking as dividends money in yourCo's account to the point you do not have enough for tax liabilities, on the basis that you'll have earned enough to cover it by the time the tax is due?

Clearly, the reason being to avoid the dividend tax at the cost of a slight risk (if you get canned in April for instance).

What about the payment on account for next year if you draw over the limit the level of which I have forgotten....

[WordIsBond]

You mean paying illegal dividends? No (though the likelihood of having trouble on it is low).

Do you mean paying the max dividend I legally can this year? Yes.

[d000hg]

But that would mean that you would be Divi'ing money that is not profit? Or is there some fancy accounting black magic to get round this? You mean on the invoice declared even though the money has not been collected yet?

Well technically it's not profit or loss until year-end, is it? So as long as at year-end, nothing is out of order, isn't this technically OK?

I mean generically paying dividends using money sitting in the company account. We talk about setting aside 20% as "HMRC's money" but it's not, it's yourCo's money until HMRC demand it so if you are able to pay all your salary bills, HMRC, etc, without ever going insolvent, isn't this legit? e.g. that £10k you have set aside for CT in June is profit at the moment

Effectively you would be issuing a dividend 'on account' but as I stress, if you are able to pay your taxes and don't go into debt, is it illegal?

You mean paying illegal dividends? No (though the likelihood of having trouble on it is low).

Do you mean paying the max dividend I legally can this year? Yes.

Exactly my question...

[WordIsBond]

I mean generically paying dividends using money sitting in the company account. We talk about setting aside 20% as "HMRC's money" but it's not, it's yourCo's money until HMRC demand it so if you are able to pay all your salary bills, HMRC, etc, without ever going insolvent, isn't this legit? e.g. that £10k you have set aside for CT in June is profit at the moment

LTD companies use accrual accounting. How could you argue that profit has accrued but the corporation tax on it hasn't? Even work in progress has to be accounted for as having accrued, even if it hasn't been invoiced yet.

I'm no accountant, but good luck finding a competent one that agrees with your idea here.

[Maslins]

LTD companies use accrual accounting. How could you argue that profit has accrued but the corporation tax on it hasn't? Even work in progress has to be accounted for as having accrued, even if it hasn't been invoiced yet.

I'm no accountant, but good luck finding a competent one that agrees with your idea here.

Agree with WordIsBond here.

It's your responsibility to ensure that the company's in a position to legally declare a dividend before it does so.

If it's got cash, but all that cash needs to be set aside for corporation tax (and/or VAT) based on profits earned to date, then that doesn't make it eligible to declare a dividend.

[d000hg]

Never heard of accrual accounting before (maybe it has another name).

So it's a solid legal argument that a company should/must know its profit/loss position at any time? Or that it must when issuing dividends specifically?

[john@UKCA]

Even work in progress has to be accounted for as having accrued, even if it hasn't been invoiced yet.

And therin lies the problem- how many Contractor Ltd's will be tempted to overstate accrued income in order to bolster the max dividend payable this tax year.

[WordIsBond]

Never heard of accrual accounting before (maybe it has another name).

Also called "accruals basis" or "traditional accounting."

So it's a solid legal argument that a company should/must know its profit/loss position at any time? Or that it must when issuing dividends specifically?

That is my understanding. Technically, you must always know so that you are sure you are not trading whilst insolvent, check the Insolvency Act if you are bored. Practically, few contractors have the kind of expenses that could cause that to be a problem. But yes, you must at least know enough of your profit/loss position to know that the dividends you are issuing are legal dividends.

For a typical contractor / one man band, it's not usually that important. You can estimate pretty close, deduct a couple thousand to make sure you are within the limit, and take the rest in dividend. If you don't take as much as you could have, well, it's your company and you are in control, you'll get the money out later, at the end of the year or whenever you get around to figuring it out (or maybe your software tells you). There's no rush. This year, there's benefit to getting it exact so you can take out every pound you legally can before the tax hits.