A client has a substantial in credit Directors Loan Account and is planning to apply for a mortgage in the future. He is taking a salary of £11000 but wishes to take a dividend to show a higher level of income to his mortgage adviser (SA302's). Does the Director need to have the Directors Loan repaid to him before he is able to take a dividend. I am aware it may be more tax efficient to take the Directors Loan first but is it unlawful to take a dividend.
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Absolutely not unlawful. The balance on the DLA - positive or negative - has absolutely nothing to do with the company's ability to declare a dividend. And it should be worrying for the client that you think that it might.
The key, for the dividend payment process, is distributable reserves-does the company have any or is perhaps the credit balance loan account an indication that there are actually no reserves to distribute?
I also agree with Ruddles, it is a very worrying question for you to be asking on behalf of a client.
What a strange question!
The implied deceit of the mortgage adviser is also a cause for concern.
Oh - it's the IFA who suggested that ?
Well, it shouldn't be too difficult to pull the wool over his eyes. He'll believe anything.
Here's a handy tip.Thank you for confirming something that I already knew to be true. The moral of the story is do no listen to an IFA who thinks he knows more than you do or you end up looking like an idiot.
If you only say you knew something all along AFTER it has been pointed out how foolish it is, your claim lacks credibility. In future, include in your OP "an IFA has told my client this, but I am sure that is wrong".
A moment of self-doubt because you have been challenged by an IFA speaking with certainty is one thing. Repeating that challenge as if it is your own view that you are checking just makes you look bad.