Hi,
I had a thought the other day with the new dividend tax rules coming into play post April 15. Would our current shareholders be better taking extra dividend this year rather than next year. I concluded that this was beneficial (I am happy to be corrected on this). However the company doesnt have great cash at the moment. So would there be any reason not to pay the dividends and then the director loan the company the funds back to the company?
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Replies (4)
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You are right that dividends can be voted in 2015/2016 without needing to be paid out in cash.
But if the company has no cash are you sure it has distributable profits?
You will have to do the calculations to see which year it is best for your shareholders to have the dividend in.
It depends entirely on the financial position of the company now and expected future revenues. For instance there'd be no point in paying dividends that push the shareholders into higher rate tax this year simply to avoid paying basic rate next year. Also, as John says, you're limited by reserves as to what you can legitimately pay out.
Certainly, I would imagine most small companies with director/owners with the available reserves will be declaring dividends at least up to the limit of the basic rate band in 2015/16 whether they have the actual physical cash to do so or not. But then I imagine for most that has always been the case anyway.
Retained profit vs Cash in bank
Our Company has a high retained profit but low working capital at present due to investments that will bear fruits in the coming years. Accountant mentioned we could declare large dividends this year but not have to physically pay out the funds with them effectively going straight back in as a Directors loan. This approach will be tax efficient for the Directors in years to come. Is this approach of not making the physical payment acceptable to HMRC?
Hijack
Our Company has a high retained profit but low working capital at present due to investments that will bear fruits in the coming years. Accountant mentioned we could declare large dividends this year but not have to physically pay out the funds with them effectively going straight back in as a Directors loan. This approach will be tax efficient for the Directors in years to come. Is this approach of not making the physical payment acceptable to HMRC?
You have hijacked someone else's thread without noticing that the answer to your question is provided in the first sentence of the first response (mine) in the thread you are hijacking.