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Agree with Portia
A dividend is a dividend is a dividend, unless it is not, which does not necessarily mean that it is salary (which HMRC might suggest), even if you have said so, to try and avoid having to pay it back to the liquidator.
Totally agree with this - an illegal dividend is still a dividend. Lack of profits doesn't turn it into salary.
Provided the proper formalities have been completed - dividend declared, paid in proportion to the shareholdings, etc etc.
The only downside is that the shareholders may be called upon to send the money back.
Life is too short
I admit I didn't read it in full, but am I right in thinking that the Court found that the clearing of an overdrawn director's account wasn't to be treated as salary because it was only retrospectively thought correct to treat the payments as such?
But
At the time, did the directors have reason to believe there were sufficient reserves?
I note a reference to Sage. Was the software, in part, to blame? Only kidding legal eagles.
One takeaway for me from this case is that HMRC are capable of sending people like Mr Boyle to argue before the tribunal that an interim dividend, until it is a final dividend, is treated as a loan in the hands of a director (what a joke!). He provided no authority for that proposition and we do not think it is correct.
@ Portia - thanks.
@ Portia - thanks. Interesting case (plus Williams v. HMRC which was cited).
@ taxguru - my thoughts exactly!
Hi
First of all, thank you Portia for this "gem". I still do not understand why the accountants would want to "re-classify" the dividends as salaries? Were the dividends illegal or not? From paragraph 13 and 20, I understand that there is no evidence to suggest that the dividends were illegal when they were declared.
It seems that the theme throughout the case is that the numbers were consistently wrong over the entire period of time and the accountant made constant "adjustments" which never really reconciled. If the accountants made this kind of mistake, I suppose they were sent to court by their former clients.
PS. Andy: "Guns don`t kill people, people kill people" :)
PS2. Would it be too much to ask for a weekly "tax case" from you, Portia? Please?
Mirror image case
Is in the link below (see especially para 47):
http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03874.html
Pedancy
An illegal dividend must, by definition, still be a dividend. If it wasn't a dividend it couldn't be an illegal dividend.
But the Companies Act does not refer to 'dividend' - it refers instead to distributions, of any kind. ITTOIA 2005 s383 refers to "dividends and other distributions", implying that a dividend is just one type of distribution. So, an unlawful distribution is an unlawful distribution - but it isn't necessarily a dividend, illegal or otherwise. But it could be. Or it could be something else.
Long Read
It's a long read but the FTT arrived at the right conclusion. As PNL has said, a dividend is a dividend is a dividend irrespective of what HMRC think. It almost infers that reclassification can never happen retrospectively - it depends upon what the intention was when the money was drawn.
It doesn't stop the dividend being illegal if sufficient reserves aren't available but that's another question. I hope HMRC don't waste everybody's time and money by appealing.
I must say that the accountant seems to have done his best to foul up the whole situation by reclassifying the money extraction as salaries - what was he thinking?