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.
- IHT - clawback of BPR 19 1
- EIS - connection through employment 81 2
- 24 Month Rule - New Employer 141 2
- HMRC Dispensation - How long does it last for? 216 3
- Electronically supplied services - B2B 18 1
- CIS and Close Company 63 2
- Correct tax & VAT treatment of local overnight expenses 210 4
- Secondment expenses 144 3
- VAT Option to tax 434 15
- Brain freeze - loss on disposal of company car 101 4
- Unaudited accounts and an accountant’s certificate of confirmation 88 3
- Is VAT payable on insurance claims received ?? 93 3
- late vat registration and immediate deregistration 131 3
- VAT Registration 320 5
- should Van be included in plant or motor vehicles? 89 2
- Can you declare dividends and not withdraw them 252 6
- PPR qualifying period while living in employer accommodation? 113 3
- How far back can you get dates of property purchases 73 1
- PAYE coding notice - deliberate misstatement 1,257 19
- husband and wife dividends 414 11
- Residential Property Purchase Above £750K 903
- Using Sage with Sofa Categories 635
- Free Tax Legislation? 396
- Director Loan account operation 394
- Understanding the implications of January 2015 VAT changes for downloads on threshold for VAT registration 319
- transferring simply accounting 2010 from xp to windows 7 314
- Sage 200 and Access Dimensions reviews 284
- rent-a-room allowance for part of the year 219
- Paye procedures for CVA 217
- HMRC Second Income Campaign - not so much a question as heads up 177