taking money from company before tax bill

taking money from company before tax bill

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I am a director of a small IT consultancy and will need to pay a £16K corporation tax this coming August. I am currently buying a bed and breakfast in a partnership with my wife, and would like to keep my mortgage down at the outset. I will also keep consulting until July or so. I am outside IR35.

Question. Since I know I will replace the £16K in the company before it is due, can I draw all the money out of the company as dividends, effectively taking the company bank accounts down to zero? I am up to date/will leave reserves for PAYE, NI and VAT.

I'm not too fussed about the risk questions of making sure I do make the £16K back, it's the legal angle on whether this is allowed or contravenes some law someplace I'm interested in.

Thanks ! Simon
simon maufe

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By neileg
04th Apr 2002 15:27

Caution required
At least three problems with your last posting. I can't go into these in depth, but here's a start:
1) You're still not clear on the difference between cash and distributable reserves.
2) There's a lot to consider when buying an appreciating asset like a property through a company. The tax situation can be good or bad or just plain messy.
3) The company has to have the power to carry on such a business. This means checking the memorandum and articles of the company.

You've got an accountant, and you've raised the subject with him/her. Either you trust their advice in which case you don't really need us to comment, or you don't, in which case you need another accountant!

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By User deleted
04th Apr 2002 00:06

basically you can do as you like
I am not recommending you take an illegal dividend but there is nothing to stop you. If you write out a company cheque and make it payable to yourself then the bank will cash it (if sufficient funds are available). nobody can stop you, you have control of the company.

If you cannot pay the money back as and when required this is when you may start to have problems.
If the company cannot pay its tax bill then you could be personally pursued by the revenue as you had taken money out you shouldn't have etc etc.

people do things they know they shouldn't do every day of the week.

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By User deleted
03rd Apr 2002 14:25

illegal dividend
This is a misunderstanding of "reserves" to a layman and reserves to an accountant. Dividends can only be paid out of realised profits. In simple terms if there is a credit balance on the P+L account it can be paid as a dividend up to that amount. It is the P+L account that is important and not other balances.

If you are proposing to pay out a dividend and leave a (tax) liability uncovered by available assets in the company, this is an illegal dividend. It is not your money - it belongs to the company which owes it to the creditor.

We have all heard stories that "it will be OK and the money will be repaid" - Mr Maxwell come to mind?

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