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Related party disclosures - dividends

2006 Companies Act dispensed with the requirement to disclose in the directors' reports of directors interest in the issued share capital of the company.

If a small company pays a dividend, are we now required to disclose as a related party transaction the dividend received by each director director?

Would appreciate any comments.


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Update ......

PWC UK GAAP 2008 Para 29 141

It is the PWC's view that dividend received by directors is a reportable related party transaction.

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Sorry did not mean to infer that it was in any way codified. Should have said that this was the section in the edition of UK GAAP that we have in the office.

This point is not mentioned in FRS 8 specifically, but would appear to be an interpretation of the wording within this. I responded on the basis of correspondence I had previously had with an Inspector of Taxes who was looking for this disclosure in the accounts for a dividend paid to a director/shareholder and I was referred, at the time, to the 'need' to disclose, as mentioned in UK GAAP.

I was also previously unaware of any requirement within any FRS/FRED/FRSSE or any part of statute, although this enquiry was pre the recent changes to Companies Act.

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I do not believe it!
Roland - I was not aware that UK GAAP had been codified into one document that has a section 29.141in it. Could you point me to the document or to the specific FRS (or FRED) that contains the statement that "Dividends paid to directors are related party transactions", please?

Pelu's question was about a small company, presumably preparing its accounts under the FRSSE. Is there any suggestion that the statement that "Dividends paid to directors are related party transactions" has been included in the FRSSE or would this be one of those cases where you need to refer to the full FRS for best practice where the FRSSE is silent?

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I think this response was probably driven by UK GAAP, which does state at 29.141 that "Dividends paid to directors are related party transactions" and gives an example of this. It also goes on to say that dividends due to directors (or their close family) should be disclosed. However I am not aware of any need to disclose dividends paid to others.

The rationale given for disclosure is that directors are more than 'mere providers of finance' which means that the exemption given at paragraph 4 of FRS 8 will not apply.

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The advise was in response to a telephone call. The advisor was unable to confirm when the change occured and explained that following the dispensation to disclose director's interest in the share capital, their view payment of dividend falls within FR8. I wonder want is the view of ACCA on this?

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Is the ICAEW advice published (if so, please point us to it) or was this just a response to a telephone call to the Technical department? If the latter, what justification did they give for making such a disclosure when FRS8, FRSSE and the Companies Act are silent on the subject? When did their advice change because I have never seen dividends to individual directors disclosed in any small company accounts.

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YES per English Institute
The technical department of the English Institute have advised that where directors and shareholders with material interest receive dividend, it has to be disclosed as a related party transactions, even though is not directly referred to in the FRS 8 does. This is now their interpretation. Therefore name of directors and of shareholders holding 20% or shares and amount of dividend received will have to be disclosed. However ACCA thinks otherwise.

Perhaps other readers have different views.

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The Companies Act requires disclosure only of loans, quasi-loans and credit transactions with directors - this does not include dividends.

The FRSSE requires disclosure only of the sale and purchase of goods and services and of loans between related parties - again, this does not include dividends.

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I don't understand why we talk ourselves into these disclsoures

Firstly, a dividend is not a transaction with a Director, it is an appropriation of profit, hence why many people decided that you do not need to disclose them under the Companies Act.

 Secondly, if there was intention in the old Companies Act that dividends with directors be disclosed, they would not have required this by allowing users to get a calculator out and work out what they would have got based on their shareholdings, they would have just required a straight disclosure. Just as gross profit is required, even though turnover and cost of sales are already required.  Thirdly, if I disclose dividends with directors, then I can reverse the calculation in the second point to work out the shareholdings of the directors, and that requirement has been removed by the Companies Act 2006, which means that they might as well have not removed this disclosure requirement in the first place. Clearly, this was not the intention.


When writing the Companies Act 2006, do you not think that dividends to directors would have been considered and if required as a disclosure, it would have been quite obvious?


If you want to disclose it, do it.


If you don't, don't. These accounts are still compliant with UK GAAP.



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