In another easy-to-follow guide, Jennifer Adams sets out a checklist for ensuring that dividend payments will meet with HMRC's approval. My previous article on directors’ loan accounts explained that the debit balance on a directors loan account is repaid either in cash or more usually via dividend. 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 check sets out points to consider when preparing such a procedure:1. The dividend must be legal2. Proper declaration of dividend3. Dividend payment date4. Dividend vouchers
The ideal world – summary checklist
See Simon Sweetman's 2007 advice in Tax expert warns of the danger of illegal dividends – a board meeting is no longer needed but written confirmation is vital. The Income and Corporation Taxes (Electronic Certificates of Deduction of Tax and Tax Credit) Regulations 2003 (SI 3143/2003) authorises the electronic delivery of dividends. See the ICSA guide Communications with Shareholders 2007.
About the author
Jennifer Adams FCIS TEP ATT (Fellow) is Associate Editor of AccountingWEB. She is a freelance writer and author specialising in tax and corporate governance.