Accruing illegal dividends
Owner-managed consultancy business, sole shareholder, company is £1k insolvent. No creditors whatsoever, other than my fees and a £2k directors loan account in credit!
Director has taken a £7k salary during the year and has no other income, he wants to issue himself a £25k dividend in order to make use of his personal tax bands this year, the dividend will simply be credited to his directors loan account and drawn down in future years when the company starts making some money.
I've briefed him on the fact that it would be illegal dividends and that should the company go into liquidation in future then he would have to repay the dividend, however he now knows the risks and to be honest the business will never go into liquidation, it's simply a consultancy business just outside of IR35 territory.
As far as I'm concerned I feel that I've covered my back with regards to giving advice, which will also be given in writing.
Can HMRC object to this? The dividend will one day be paid. Would welcome some thoughts on the practicalities of this please. And also does anyone else put a note in the accounts stating that an illegal dividend has been issued or is that considered overkill? No banks or suppliers will be relying on these accounts so a note doesn't really concern the client.
- What are my legal responsibilities 211 11
- Rental business through company without owning the property? 316 4
- No more tax returns... 1,504 13
- How much state pension will client lose out if drops salary 399 6
- Signed accounts for bank 227 7
- Companies House paper incorporation - date of birth omission 465 10
- Landing clients 374 15
- Are any of you members of The Institute of Financial Accountants - Accountnats certificate 1,135 22
- Termination Payment 163 5
- dividend date - whose income is it? 175 3
- CRM / marketing 97 2
- Allocation of income from property 748 26
- Stand alone practice management software 1,863 28
- Opening a Quick books file 103 1
- 64-8 problems 508 8
- Guaranteed rents - which is the turnover? 343 10
- Payment on account reminders 232 3
- Intercompany Payroll Journals 104 3
- Hello 514 4
- AIA/Capital Allowances 496 14