Who's right?

Who's right?

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There is some disagreement in our office about the way to deal with dividends and overdrawn director's accounts.

In a situation where a sole shareholder/director uses money from the company during the year to pay for personal expenses such as holidays, car loans etc. leaving an overdrawn current account at the year end, is it acceptable to just put a dividend through the accounts to clear it? Their argument is that they had a meeting with themselves and declared a dividend before these items were paid.

My own take on it is that these are clearly not dividends and should not be recorded as such in the accounts or on their personal tax return. When I have clients who do this I declare a dividend on their behalf, along with the voucher and board meeting minutes, to clear the loan at the date the accounts are drafted. Provided this is within 9 months of the year end then s419 does not apply, if they are late in providing their records then the s419 charge is applied.

What do other people do?

Steve Brown
Steve Brown

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By AnonymousUser
05th Nov 2007 16:58

template
I provide clients with a template on excel where they just change the date and click print and sign the mintues & vouchers each month.

Obviously its easy to declare a set amount each month when you know what profits are but a bit of a guess where no mgmt accounts are produced.

dont forget beneficial loan implications of being overdrawn during the year even if cleared just before year end.

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By 0680727
05th Nov 2007 22:19

Agreed.
The first option of putting through a dividend to clear the loan account is a bit old school ... it used to be done but hasn't been acceptable for sometime.... dividends have to be properly minutes and have vouchers. In our office we usually send the client the CT600a and explain exactly what they need to do if they don't want to pay it i.e. repay ... declare dividend etc. We don't always assume a dividend because of any personal tax implications. Sometimes it can be beneficial to accept the s419 and repay the loan at a later date depending on other income.

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Euan's picture
By Euan MacLennan
06th Nov 2007 13:40

Either way
Oops! Originally posted this answer to the duplicated question:

Your approach is absolutely proper and correct - provided that you are not literally declaring a dividend on their behalf, but are merely producing the paperwork for them to confirm their decision - and I am sure you sleep well at nights.

However, I am not sure that the alternative approach is incorrect. If the director says that he made the decision to declare a dividend and has merely waited for you to produce the right paperwork to record his decision, who are you to say that he did not declare a dividend at the time, particularly if he showed it as "dividend" in his records or on his cheque book stub? There is a difference between backdating a decision (by producing backdated minutes) and the subsequent recording on a of an earlier decision (by preparing current minutes to confirm an earlier dividend).

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