i have an overdrawn Directors loan account at 31st march 2011 circa 13k. I propose to clear this with a dividend on 30th November. How do i account for tax on Dividend and will it reduce my CT liability? i.e tax paid on dividend will reduce CT payable.
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You don't
The dividend is paid out of reserves after payment of corporation tax. So if, after paying or providing for corporation tax for the year, there are enough retained reserves then you declare a dividend of say £13,000 (dr dividend, cr director's account) in order to clear the overdrawn situation.
In the director's personal Tax Return, he will declare the dividend received and pay income tax if the grossed up dividend, together with other taxable income, takes him into the higher rate tax band.
Don't forget your P11D ...
which was due last July to account for the benefit in kind on the beneficial loan.