Hello. I have recently set up my own practice, and have had a number of new clients who seem to have never bothered with dividend paperwork. They tend to be one-man contractor businesses, so there's only one person on the board who would be having a "board meeting" with him/herself. I've seen no evidence of clients paying themselves amounts they've called dividends which exceed the distributable reserves, so the issue seems to me to be really just about whether the tax man would consider these payments to be a loan or salary if he was not satisfied with the paperwork. Many of these clients have come to me from some large and well established prior accountancy practices (who shall remain nameless), so I'm surprised by this oversight and am now wondering if I'm being overly cautious. I thought it was important to do dividend paperwork on time, although clearly when there's just one person involved it's incredibly easy to write, print and sign some board minutes and dividend vouchers if and when anyone asks. Any thoughts?
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Have a search on this site. There have been loads of questions on a similar theme - actually identical theme. You will probably get a 50/50 split saying 'yes' it matters and 'no' it doesn't matter. Ultimately you will recommend what you are comfortable with.
Dividends vouchers are always retrospective, the only question is whether it is by seconds, minutes, hours, days, weeks, months or years. It's not like you've got a stenographer typing as you go, is it?
A flippant answer, but true nevertheless.
In reality, it is not the dividend voucher itself that is the problem, it is whether the dividends themselves were correctly sanctioned. The dividend voucher is merely the paperwork that reflects this sanction.
This is often a problem where the owner was previously self-employed and equates previously taken self-employed "Drawings" to Limited Company "Dividends".
During my initial take-on of clients I particularly emphasise the difference and have an additional offering (at a slightly higher cost), whereby we will
draw up brief management accounts for signature by the director/shareholder/ownermake recommendations on dividends based upon management accountsoversee the board meetings where dividends are issuedwrite-up board minutes for signature by the director/shareholder/ownerdocument dividend vouchers for signature by the director/shareholder/owner
We offer this on a quarterly or half-yearly basis and from start to finish the process only takes about 30-minutes. Hardest part (as usual) is getting the information off the client to draft the management accounts.
Very few of my Oil & Gas OMB's sign up for it, but at least I give them every opportunity.
Does all of this faffing about make any difference? Certainly it is good to get it right and keeping paperwork in order is always useful in case of a Business Records Check from HMRC.
It's mostly paranoia about having HMRC try and challenge a dividend payment as salary. It's not necessarily a genuine issue.
I disagree
Dividends vouchers are always retrospective, the only question is whether it is by minutes, hours, days, weeks, months or years.
A flippant answer, but true nevertheless.
I disagree that dividend vouchers are always retrospective. I have several clients where I provide monthly or quarterly management accounts and then tell them what dividend is available, client tells me how much they'd like and I then produce the required paperwork. I give them the paperwork and then they pay themselves the dividend or it is posted to director's account as appropriate.
Is this really unusual?
I think you are being overly cautious.
If a company makes a payment to a shareholder which it describes in its records as a dividend then a dividend it is. It does not need a formal board minute or dividend voucher to make it a dividend - it already is one.
All this is quite separate from the advice you need to give to all directors of companies which habitually pay dividends as to the consequences of paying illegal dividends and the steps they need to take sure that the only dividends they pay are legal ones.
Hi would you say this still applies with the new laws coming into place later this month?
I do have one or two clients who list as a dividend in their bookkeeping and it is only at the point of me requesting the slips/minutes for their accounts/tax returns that they complete the necessary paperwork.
Thanks
Hi would you say this still applies with the new laws coming into place later this month?
I do have one or two clients who list as a dividend in their bookkeeping and it is only at the point of me requesting the slips/minutes for their accounts/tax returns that they complete the necessary paperwork.
Thanks
Whether or not it would apply in this particular instance, I do hope that you're aware of the legislation referred to.
If a company makes a payment to a shareholder which it describes in its records as a dividend then a dividend it is. It does not need a formal board minute
So, you think that Companies House and various respectable legal firms have got it all wrong?
Why not print out my article and give to them?
Euan wont like me for saying this... but here is an article written in the form of a checklist on this very subject.
https://www.accountingweb.co.uk/topic/tax/dividends-checklist-get-details-right/470525
The article starts...
'The dividend procedure is just a matter of making the correct journal entries to show the final amount declared in the correct place on the Balance Sheet - yes?
Not quite. HMRC are increasingly contending that such dividends are in reality earnings under the s62 ITEPA 2003 (salary sacrifice) rules and to persuade them otherwise needs proof that a set procedure for the declaration of dividends has been followed.
The following is a ‘checklist’ of points to consider when preparing such a procedure.....
I've arranged for all my corporate governance articles to be placed under a 'Tag' in my name.
johngroganjga says 'being overly cautious' - yes you probably are - but it only takes one being checked out.
I agree with JAADAMS
Clients can't just opt for the benefits of incorporation and ignore the additional compliance that goes with companies. As for being 'overly cautious', if HMRC do enquire into any of your clients then having the dividends properly documented not only closes the door on the General Earnings argument but also gives HMRC a perception as to the competence of your firm.
How I used to do it.
When I was a contractor with a LTD, I have a few “payments” set up on internet banking all going to my personal account.
PAYEDIVIDENDEXPENSIVES
And always used the correct one when moving money to my personal account, this make the back statements into a good record of intent. I would also never pay dividends more than quarterly
(I never used a director’s loan account apart from once when I leant the company money, the repayment was done with a bank payment named “Load Repayment”. Sometimes I would have more than one payment going to my personal account on the same day, just to keep it nice and clear what is going on)
Absolutely right
"EXPENSIVES"
I presume you mean "Expenses", but given the massive rise in the cost of travel and accommodation, you might be right.
Equally, I presume you didn't mean “Load Repayment”, but rather "Loan Repayment" or "Directors Loan Account" as we more correctly refer to it.
In my view, there is nothing wrong with a directors loan as long as the director is aware of the strings attached and implications of getting it wrong.