Dividend payment date

Dividend payment date

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Client is a limited company with husband and wife shareholders. A dividend is declared on 4th April and the wife's share is paid on that day. The husband's dividend is not paid until 8th April.

As long as the dividend paperwork correctly reflects the actual dividend payment dates (4/4 for the wife and 8/4 for the husband) are there any issues with paying a dividend on different dates? The directors took the decision to pay the dividend on different dates due to trying to use up the wife's basic rate tax band prior to the tax year end, at which point the husband was already a higher rate taxpayer.

In other words, are there any issues with having a payment date of 4/4 on the wife's tax voucher (and this being included in the 2013-14 self assessment) and a payment date of 8/4 on the husband's tax voucher (and this being included on the 2014-15 self assessment).

Replies (34)

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By Marion Hayes
10th Jul 2014 11:48

Yes there are

This was the same dividend and has, for tax purposes, the same date of payment. When declared it is a dividend of £x payable to all shareholders registered on a particular date.

I believe it is the date of declaration or the date specified in the declaration if later. This is the date to be shown on the dividend paperwork, not the physical date received by the shareholder.

These two payments are the same dividend so unless the declaration said payable on 8th April they were both paid on the 4th. Alternatively they were both paid on the 8th.

You would have needed either a different share structure or two dvidends and waivers to achieve the preferred result.

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By sparkler
10th Jul 2014 11:51

Thanks Marion, I had thought that would be the case. No possibility of them both being paid on the 8th because one had already been paid on the 4th.

Thanks for confirming my thoughts!

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By User deleted
10th Jul 2014 11:55

A dividend is paid (whether interim or final) to shareholders whose names appear on the register of members on a particular date called 'record date'. Actual payment dates as such will have no bearing on how it is taxed in the hands of the recipients. Even in the case of interim dividends which are taxed when paid, you can't choose two different dates for two different shareholders of the same class.

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By Marion Hayes
10th Jul 2014 12:37

@taxguru

Slightly disagree with you.

Each dividend has two dates - the date it goes ex dividend and the specified payment date.

For most close company dividends this is probably the same but if specified in the declaration they can be payable at a later date. The specified payment date is when it is taxable, not the ex date or physical date

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Replying to legerman:
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By User deleted
10th Jul 2014 12:57

Disagreement about?

Not too sure what is the disagreement about?

If you're saying the board resolution could authorise a different payment date than the record date yes, that is possible.

 

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Replying to cfield:
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By Kirkers
10th Jul 2014 12:59

Agreed

taxguru wrote:

Not too sure what is the disagreement about?

If you're saying the board resolution could authorise a different payment date than the record date yes, that is possible.

 

I read the questions as husband and wife both want different dates recorded AND paid for their dividends. I agreed with your first post in that respect.
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By Justin Bryant
10th Jul 2014 13:27

You can probably achieve this with interim divs

Declared before end of tax year, with one div paid before and one after the tax year. Do a search on this website or elsewhere re interim divs tax point date.

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By sparkler
10th Jul 2014 13:43

clarification

Just to clarify, both dividends are declared before the tax year end, on 4 April. The wife's dividend is paid on 4th April.

The husband's dividend is paid on 8th April.

So Justin, are you saying that this is possible and I do not need to treat the husband's dividend as being paid on 4th April also? It makes a big difference to the husband's tax liability so I must get this right!

I am already aware (and searches on this and other sites confirm) that the tax point is the payment date of the dividend, but my searches have not yet confirmed whether the "payment date" can be a different date for each shareholder.

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By Justin Bryant
10th Jul 2014 13:49

I see no reason why not

As long as it an interim div. Good luck.

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Replying to SteveHa:
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By sparkler
10th Jul 2014 13:50

thanks

Justin Bryant wrote:

As long as it an interim div. Good luck.

It is indeed an interim div.

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By User deleted
10th Jul 2014 14:14

Disagree

I disagree with the above comment.

1. In accordance with The Companies (Shares and Share Capital) Order 2009 the particulars of shares are prescribed on the statement of capital. Normally all shares rank parri passu in terms of right to dividends unless specifically stated otherwise. So in the normal circumstances there is no scope for differential treatment for a particular shareholder.

2. Tax laws follow the company law treatment and that is what HMRC staff manual advises.

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By Marion Hayes
10th Jul 2014 15:31

@taxguru

I was trying to say that the board would vote a dividend and there could be 3 dates involved. The date upon which shares had to be owned to qualify for the dividend ( ex date) , the date the dividend was to be paid, and the date the dividend was declared (record date).

Thats why it was only a slight disagreement.

I would definitely disagree that there culd be more than one payment date for the same dividend. We could have had far simpler planning opportunites in the past if that was the case.

 

 

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By Justin Bryant
10th Jul 2014 15:57

I think taxguru is wrong

Unless he can state any supporting tax case law or legislation for his view (I am very happy to be proved wrong). For example, the company could go unexpectedly bust (or at least insolvent) half way through the day before posting all the interim dividend cheques and those taxpayers who didn't receive a cheque (due to the company going bust and so deciding not to post any further cheques) would not be liable for income tax on the interim dividend, whilst those who got an interim dividend cheque and cashed it would.

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By User deleted
10th Jul 2014 16:38

@Justin Bryant

Legislation and case law for what; for the hypothetical situation that you have stated, which obviously has nothing to do with the facts of the case!

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By Justin Bryant
10th Jul 2014 16:54

If you are right

Then the corollary is that person not receiving the interim dividend cheque in my example would be subject to tax - but that cannot be right, so (with respect) your view must be wrong (one can think of many other similar examples to test the correctness of this and this is what judges do when they decide such things in order to justify their decisions and that is all I am doing here with such examples). I assume you have no tax case law or legislative justification for your view here, but again I am very happy to be proved wrong if you do.

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By User deleted
10th Jul 2014 17:06

I'm a bit unclear as to the point on which you need a statutory reference or a case law reference:  This HMRC staff manual (copied and pasted on forums across the internet!) has enough information on when an interim is paid or deemed to be paid. If your point is that different shareholders could be treated differently then I stand by my comment at 14.14 .

 

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By Justin Bryant
10th Jul 2014 17:23

OK

Let's agree to disagree. HMRC manuals are of course not the law and are often wrong in any event and the extract you refer to assumes payment the same day etc. so is not really relevant here. Also, in theory a company can simply breach CA 2006 requirements in case that is relevant. But perhaps we can agree it is not a simple question. (Few tax questions are simple!)

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Stepurhan
By stepurhan
10th Jul 2014 17:36

Extreme examples

In all honesty the "company goes bust halfway through sending out the cheques" is a ludicrous scenario anyway. If a company goes bust halfway through sending out the cheques, then the cheques they sent out before are unlikely to be honoured either, so no-one will receive anything. The fact is that all shareholders are entitled to dividends at the time they are declared. The actual payment of the dividend is an admin matter. Regardless, that is not what has happened here anyway. All the shareholders have received the dividend. You cannot alter what period a liability falls in simply by sitting on a cheque.

To take a more commonplace scenario, if a customer goes bust you make a bad debt provision. You still show the income, but you show a matching expense to cancel it. You do not treat the income as if it never happened.

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By sparkler
10th Jul 2014 17:53

Taxed when received?

I'm still not quite clear on the period in which the husband's dividend will be taxed. I am absolutely clear that the wife's dividend will be taxed in 2013-14.

If the dividend is received in tax year 2014-15 (which the husband's is), then it must be taxed in tax year 2014-15.  Unless it was credited to the DLA in tax year 2013-14, which would be the case if it is not allowed to show different payment dates on the tax vouchers for different shareholders. This is the point I am still unsure about.

 

 

 

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By Justin Bryant
10th Jul 2014 18:34

sparkler

Assuming it was not credited to DLA in 2013/14, I think you have a filing position to tax it in 2014/15, based on the date on the cheque perhaps or when the cheque is physically received or cashed (in theory the cheque could be cancelled by the company and if so it would not be taxable in my view). I think you can ignore the above contrary comments in the absence of any conflicting tax case law or legislation on the point (you can always get a tax lawyer's opinion on this for protection re potential penalties etc. and I could do this if you like).

 

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By Steve Kesby
10th Jul 2014 18:52

I agree with Justin

An interim dividend isn't paid until it's paid. If one shareholder is paid on Friday and the other is paid on Monday and Friday and Monday happen to be in different tax years, then they get taxed in different tax years. So what?

That doesn't alter the fact that the two shareholders were entitled to the same time. They were perhaps even entitled to receive it at the same time, but they didn't, as a matter of fact.

From a company law perspective there are two dividends arising under the same entitlement on Friday and on Monday.

To my mind, CTM20095, to which taxguru refers, clearly acknowledges that point at paragraphs 9, 13 and 14.

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By Justin Bryant
10th Jul 2014 18:58

Supporting case law for Steve's & my view is

Potel v CIR 46 TC658. See the following extract:

"In fact, the law is stated to be precisely the contrary in Buckley's Company Law, 13th edn. (1957), at page 897, and I am told that this is a reflection of what appeared in earlier editions. The note in Buckley reads:

"Where the directors are authorized to pay interim dividends, a mere resolution to pay does not create a debt as between the company and the member so as to prevent the directors from subsequently rescinding the resolution."

I think that is a correct conclusion from the decision in the Lagunas Nitrate case, which establishes that an interim dividend is, as it were, subject to the will of the directors until it is actually paid." 

(I always find it odd that people on this website like to argue that more tax is payable than necessary without any proper justification.)

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By User deleted
10th Jul 2014 20:10

@Justin

I always find it odd that people on this website like to argue that more tax is payable than necessary without any proper justification

​But I'm yet to see any reference (legislation or otherwise) from you justifying your point except the one at 18.58 which is in fact from the manual I referred to at 14.14. 

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By Justin Bryant
10th Jul 2014 20:18

Taxguru

I think you are wrong in everything you say above, but let's agree to disagree (as life is too short!)

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By User deleted
10th Jul 2014 20:29

Since you have no technical arguments to support your view, and have been repeating others are wrong, yes let us agree to disagree. I'm done with this thread.

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By simontill
17th Jul 2014 10:10

some thoughts

Cant agree with Justin

Your quote re resolution to pay, has this not been enacted by making the first payment and therefore cannot be rescinded if part paid unless is it cancelled and the first payment treated as loan account drawing which would then not be dividend anyway

For OP, In determining dividend date of 4 April the tax affect is too high for husband could the dividend be treated as 8 April and the initial payment as a loan account advance which would probably not fall for benefit in kind as not full month advance or s455 tax charge as subsequently repaid by dividend

 

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By jonsa
17th Jul 2014 17:35

Minute

But what does the Minute state for the interim dividend payment date.  I am sure HMRC may not be happy about a cheque delayed 4 days in order specifically to save/avoid tax.  That appears to have been their intention.  In view of that delay I believe they should both be treated as 2013/14 dividends for husband and wife, as a challenge by HMRC is unlikely to be successfully defended.  Any other treatment and I would hope they have tax investigation insurance.

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By Justin Bryant
22nd Jul 2014 15:26

See also

The case in the bottom of this thread, Parkside Leasing Ltd v Smith (H M Inspector of Taxes) [1985] STC 63 , that supports Steve's & my veiw and that it is the date the cheque clears that is relevant.

https://www.accountingweb.co.uk/anyanswers/question/can-you-declare-dividends-and-not-withdraw-them

It's very odd how people above (who I assume are mostly accountants or lawyers whose job it is to minimise their clients' tax bills) continue to argue the contrary without any proper justification.

See another odd example of this (again with Steve & me) in this link:

https://www.accountingweb.co.uk/anyanswers/question/beneficial-loan-interest-former-employee

I am very happy to be proved wrong with a relevant tax case or legislation.

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By Steve Kesby
22nd Jul 2014 16:05

Now I don't entirely agree Justin

As you note in the other thread, Parkside Leasing (I've not yet read it though) deals with old Sch. DIII interest, which used to be taxed on a receipts basis. Interest is now, of course taxable on an arising basis.

Dividends are taxable on a paid (rather than received) basis. Paid and received are different things. If I have sufficient funds in my account, when I've sent you a cheque I've paid you, albeit you might not have received my payment.

A dividend is taxable once it is paid.

I think this got done to death on the when is a pension contribution paid thread a while back.

I remain in agreement though that, whilst they might be entitled to their dividends at the same time, interim dividends might, nonetheless, be paid to shareholders at different times and be taxable at different times accordingly

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By Justin Bryant
22nd Jul 2014 16:18

OK
I disagree with Steve on his above comment, as Parkside Leasing Ltd and Potel taken together show that I am right and a senior tax QC has agreed with me, but let's leave things there (at least we now know that it's not a simple question!).

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By Justin Bryant
22nd Jul 2014 18:35

Basil

If you read this case, it confirms that the legislation cannot be twisted by strained interpretation to block an apparent loophole:

http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03816.html

If you read the other cases I refer to above, the position seems pretty clear to me i.e. you can just chuck an interim dividend cheque in the bin etc. and it will not be taxable unless & until the cheque actually clears.

 

 

 

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By Justin Bryant
23rd Jul 2014 10:15

Basil

I have never assumed that deemed payment dates for interest, dividends, and pension payments are the same, so I do not know why you say that. In fact, it is trite law that mostly there are different dates as the link below shows, so it is odd for you to suggest that I would deny such an obvious point.

http://taxinterpretations.com/?page_id=807

Although concerning interest, Parkside Leasing Ltd is relevant for cheques and when taken with Potel shows that I am right here and a leading tax counsel agrees with me. Anyway, as I disagree with most of what you say above, let's agree to disagree and there's no need to apologise!

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Replying to Tom 7000:
Stepurhan
By stepurhan
23rd Jul 2014 10:39

I see the problem

Justin Bryant wrote:
http://taxinterpretations.com/?page_id=807
This whole thing is clearly taking place in Canada, and thus subject to different tax rules. Why else would a website specifically dedicated to Canadian tax implications be posted in support of a view. You need AccountingWeb Canada. Not AccountingWeb UK.

Incidentally, agreeing to disagree is only applicable when an issue is open to interpretation. If you said that being called Kevin exempted you from paying all tax that would be simply wrong (in the UK at least. It may be true in Canada). Moreover it requires both sides to agree to it to be meaningful. If I am certain you are wrong then I do not agree to disagree. I am at most simply tired of arguing with someone that won't accept they are wrong. One side simply saying that we should "agree to disagree" does not give a wrong view validity.

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By Justin Bryant
29th Jul 2014 16:45

Comments

By certain individuals are obviously best ignored! The case in the link below shows that Steve is wrong re the interest cheque clearing point.

http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j7870/TC03813.pdf 

 

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