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.

Comments
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occca |

Thats the simple answer I

Sheepy306 |

But ...

Old Greying Accountant |
Old Greying Accountant's picture

hmmm

pembo |
pembo's picture

Exactly ...

Old Greying Accountant |
Old Greying Accountant's picture

Dividend or salary

Tkwhitehouse |

as Frankie Howerd used to say

pembo |
pembo's picture

Article on 'illegal dividends'

JAADAMS |
JAADAMS's picture

liquidations

pembo |
pembo's picture

Based on experience I agree

thacca |
thacca's picture

Queens Moat Houses?

The Limey |

I don't know the case law

Tkwhitehouse |

Queens Moat Houses

pembo |
pembo's picture

I disagree with Pembo's analysis

BKD |
BKD's picture

Relevant Accounts

The Limey |

A loan

thacca |
thacca's picture

sorry guys

pembo |
pembo's picture

Then we agree to disagree

BKD |
BKD's picture

So what happens if...

paulwakefield1 |

Paul

BKD |
BKD's picture

Yes - I am aware that interim accounts are not required

paulwakefield1 |

I don't see what the problem is

BKD |
BKD's picture

Well I think we may have to agree to differ

paulwakefield1 |

OK we agree to differ

BKD |
BKD's picture

A bit of a technicality I suppose

paulwakefield1 |

It's not a technicality

BKD |
BKD's picture

We may be saying the same thing?

paulwakefield1 |

Question of fact?

BKD |
BKD's picture

My definition

paulwakefield1 |

That's not what I accept at all

BKD |
BKD's picture

Let's move on

paulwakefield1 |

Interim accounts?

Tkwhitehouse |

Interim accounts

paulwakefield1 |

TECH 02/10

The Limey |

Thanks

paulwakefield1 |

be careful with this one

Tonykelly |
Tonykelly's picture

all very interesting ladies

pembo |
pembo's picture