Good morning
I have a question regarding directors remuneration/dividends.
A Limited Company was set up in 2013 with only husband and wife as directors with the first year end of 28th February 2014.
The Directors have been living off their savings with no wages/dividends being paid from the Company bank account although a PAYE scheme has been set up.
There are no management accounts as yet to assess actual profits made.
Is it advisable to pay some remuneration in the tax year ended on 5th April 2014 up to the respective personal allowances (or higher ?) or accrue an amount in the financial statements in due course and pay in the next tax year.
I have this thought that HMRC tightened up on accrued remuneration in accounts that were not paid until much later to avoid corporation tax at the time.
Any assistance will be appreciated.
Replies (12)
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But if you don't know whether there any profits, how do you know whether there is any corporation tax to save by accruing remuneration?
If the directors have been unable to take any money out of the company then it sounds as if it may not have made a profit.
But yes you can accrue remuneration and it will attract corporation relief if it is paid (i.e. put through the PAYE records) within nine months of the year end. But if there is no corporation tax relief to be obtained, and no cash for the directors to draw, there is no point.
You can't accrue dividends. You account for them when they are paid. Of course they do not reduce corporation tax in any event. And you can't pay them unless there are profits.
Johngroganjga
Surely if a limited company has profits at the year end a dividend can be declared and paid out from the business bank account post year end. In the profit and loss appropriation section you would have a deduction /debit and you would credit the balance sheet with a liability of ' dividend payable '.
Put that 1950s text book down and take to trip to the library. Stay there and don't use their internet connection.
Put that 1950s text book down and take to trip to the library. Stay there and don't use their internet connection.
That's very unkind, Andy. It might seem like forever but it's only about 10 years since the law changed.
Don't forget our man was a guitarist by the time of the cultural revolution in the 1960s. Acid would have rendered the concept of CPD futile. Hence, his text books are probably older. Not unkind at all.
RUDDLES
I have not been involved with Ltd companies since 1981. So I am sure you will understand my position. Accountancy has been good to me but I was a top 5 grammar school boy. I hope you empathise with me
You can hope in vain.
If you’ve not been involved with companies since the 80’s why are you wasting your and everyone else’s time in making pointless contributions to discussions that ended years ago?
You say you were a top 5 grammar schoolboy - are you sure that the past tense is appropriate?
RUDDLES
Accountancy has been good to me but I was a top 5 grammar school boy.
Not sure of the connection between the two parts of that sentence?
Do ‘top 5’ Grammar school students not normally make good accountants?
... Exception that proves the rule ...
Of course accounting formats and tax law are constantly in flux but we never lose the discipline concept. Do you know of any manuals I can read to update my mind.
My time has been spent in industry - management accounts production /cash flow etc with a side line of sole traders.