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Dividends over-paid...what to do?

Dividends over-paid...what to do?

I have completed a set of annual accounts for year ended Nov 2010 using the Sage data supplied to me by the company's previous accountant.

After calculating the corporation tax and putting this through the accounts, the total dividends paid in the year now result in a negative retained profit of around £150.

I know that dividends can only be paid out of retained profits, and have read various discussions on "illegal" dividends, but my query is, what to do about it?

The dividends have been paid, so do I need to reclassify anything to directors loans? Or do I just submit to Companies House / HMRC as is and wait for HMRC to contact the company and tell them whether they need to reclassify?

Thanks for any advice

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24th Aug 2011 15:55

£150?

If you look at your working papers again, I have a feeling that you have over estimated your accruals or under estimated your prepayments.

 

 

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24th Aug 2011 16:55

push it up the line

You probably also want to get your senior to do any such 'reviews' of this nature. I wouldn't thank my assistant if she tried to do this and made a mess of it.  It may also of course be that the dividends are fine when declared. Depends when the loss arose.

I am sure your boss will be pleased you have raised this issue, and ask them as a training exercise to explain what they have done about it.

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By BKD
24th Aug 2011 17:25

Just because

The year-end accounts show a small deficit in reserves does not, as the comment above notes, make the dividends illegal. If there were suffiicient reserves at the time - based on prior year statutory accounts or interim accounts - you are fine. What it does mean is that if you want to declare a dividend during the following year you will need to draw up interim accounts that show sufficient reserves.

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24th Aug 2011 17:32

As mentioned above (in amongst all the baggage) it really depends on what the directors thought or ought to have thought the situation was at the time they paid the dividends.  In other words if the management accounts or info available to them indicated that the dividend payment was OK then it's not illegal and so you can leave things as they are but obviously they should make sure that they leave enough profit in to cover the £150.

If this was not the case then the cash should really be repaid (as it can't be a dividend) and so technically was a loan to a participator at the year end. Subject to a positive P&L afterwards they could declare a dividend for £150 + this year and not draw £150 of it.

I agree, for £150 all the above is probably not worth it but you can never guarantee what a sharp eyed ixbrl reader might flag up and it's best to know the rules as the next one might be £150K.

Edit: sent without seeing BKD's comment

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25th Aug 2011 20:56

It is a dividend

If there were insufficient reserves when the dividend was voted, then it is an illegal dividend. This means that, if the recipient were aware of this, it is liable to be repaid. However, it should still be shown as a dividend rather than reclassified as a loan as it was a dividend, albeit an illegal one. This should be disclosed in the financial statements and the directors should state that they undertake to make no further distributions until there are sufficient reserves. The ICAEW issued updated guidelines in July 2011 - see http://www.icaew.com/~/media/Files/Helpsheets/technical/illegal-dividends-in-a-private-company.ashx 

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