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Overdrawn Directors Account??

Hi Guys,

I have just prepared a set of accounts for a client who paid himself a mid year dividend. A set of interim accounts were done showing that there was sufficient profit for this and a directors resolution was done and documented, etc. By the time we have come to year end, more money was spent on stock which was not budgeted for and now there is insufficient cash balance to pay the corp tax that has been calculated. Money has come in post year end to give sufficient cash flow so as such, there is not a cashflow problem. however I am alittle unsure of how to process this. I can do the PL as usual which calculates the tax liability and this will sit on the BS till the cashflow is able to clear ( which was 2 weeks later) but something tells me this is the wrong approach.

Any advise?


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11th Aug 2012 06:19

No overdrawn director's loan

You can pay a dividend if there are undistributed profits available. Buying stock doesn't reduce profits so it's not looking like more money has been paid out in dividends than profits. There's no overdrawn directors loan. The only problem is that in the short term the client doesn't have the cash to pay the tax bill. The tax bill doesn't usually have to be paid until nine months and one day after the end of the year end so I'm unsure if there is even a problem of paying the tax when due.

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11th Aug 2012 11:26

I agree - seems like a cash flow issue - not an accouting issue.

If client cannot pay tax at the time, they can of course, try contacting HMRC agreeing payment terms.

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By khalm0
11th Aug 2012 14:18

Thanks guys. I was under the impression that there had to be sufficient cash flow to cover this liability. It was only temporary anyway, the cash come in 2 weeks later and the business is cash positive and able to pay this liability. That's good then, there is nothing to do and the cash that has come in after can pay the liability. Thanks guys.

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