Dividends

Dividends

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I have a new client who are taking the minimum wage through PAYE then a £3,500 monthly dididend.

This seems a clear example of avoiding National Insurance and would imagine the Inland Revenue would think likewise. Is this acceptable? If not can they take quartely didvidends?

They have enough profits in the company to pay dividends.
Stephen

Replies (8)

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By AnonymousUser
21st Feb 2007 13:19

Thanks
You have all been more than helpful, thank you.

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By AnonymousUser
21st Feb 2007 13:52

further tax planning tip
there is no need to pay NMW where they are owner directors without a contract of employment.

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By AnonymousUser
21st Feb 2007 10:37

I would not recommend loans in this situation
as you will find there may be benefit-in-kind issues.
If you have sufficient profits then there will be no problems paying the dividends, but be aware of the correct procedures.

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By AnonymousUser
21st Feb 2007 10:13

OK by me.
I can find nothing, apart from desire on the part of HMRC, that can turn a legal dividend in to an illegal one. That includes, frequency, interaction with PAYE earnings, method of payment etc etc. Provided there are no IR35 or settlements implications then I do not believe your client is doing anything wrong as the law stands today.

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By AnonymousUser
22nd Feb 2007 00:07

Why not ...
vote a dividend up front to cover the following 12 months (providing there are sufficient distributable profits). This amount is credited to the Director's loan account which is then drawn on monthly or when required. This avoids the paperwork of monthly dividends and also the benefit-in-kind problems of overdrawn loan accounts (if dividends are declared subsequently).

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By AnonymousUser
21st Feb 2007 10:46

Ordinary shares
I agree with the previous comments that there is absolutely nothing wrong with monthly dividends. It seems to be a bit of an accounting urban legend that this would cause problems. It isn't an arrangement for the owner of a company to take regular dividends! HMRC even say in their manuals that they are not looking to target this sort of set up.

However this is assuming that these are ordinary shares with normal rights, it's not quite so straight forward if there are such complications as alphabet shares or waivers.

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Euan's picture
By Euan MacLennan
21st Feb 2007 10:26

I agree
... with Steven.

Usual caveat about having signed minutes of directors or members to authorise the dividends and to prepare dividend vouchers, which can be a pain if you have to do it every month. On another thread, someone mentioned preparing just one consolidated dividend voucher for the tax year like you get from some listed companies.

Or you could regard the monthly drawings as loans to be repaid out of a subsequent annual or quarterly dividend declaration. This saves the trouble of minutes every month and although it is a breach of the Companies Act to lend a shareholder more than £5,000, this is never enforced, particularly if the loan is repaid by the accounting date.

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By AnonymousUser
22nd Feb 2007 11:44

agree but
unlikely that sufficient distributable reserves at start of year for most lifestyle businesses where income is generated and spent fairly evenly.

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