Dividends checklist: Get the details right

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 legal
2.    Proper declaration of dividend
3.    Dividend payment date
4.    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 is a freelance writer and author specialising in tax and company secretarial issues; she can be contacted at Abacus Business Solutions. The information contained in this article is intended to provide for general educational use and information only. It is not intended to advise or recommend any particular course of action or opinion. The reader should not act or rely on any information contained therein without seeking independent legal advice.

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Comments

Dividends

kershcliff | | Permalink

In your article you say that a single dividend voucher is acceptable.

1 Presumably the wording would say ....net dividends payable for the year ended .......2011?

2 Can one make one entry on an SA Tax Return, currently my firm lists all the dividends separately in date order?

 

Lawrence

dividend listings

Regentservices | | Permalink

The actual self assessment  tax return shows a single "net" figure on the return. Where you refer to individual listings, this is presumably a schedule you are preparing to send to the client to enable him/her to check the entry before they sign the return. in that case, it makes no difference whether you use the consolidated voucher or the  individual entries.  hope this helps

H

Old Greying Accountant's picture

To my simple mind...

Old Greying Acc... | | Permalink

... this is the pinacle of pointless, petty minded, form filling bureaucracy gone mad and epitomises why this once great country has gone so badly wrong in so many ways.

Darwin must be spinning in his grave!

 

sORRY OLD GA

geoffmw | | Permalink

I'm probably older than you. It has always been the case that the proper legal process should be followed to be saure that dividends are lawful and not fraudulent (such as backdating),should the company go into liquidation.

 

So much pointless ***p

spurs1952 | | Permalink

 Hear Hear

bookmarklee's picture

Either the company and dividends are real or they're not

bookmarklee | | Permalink

If it's too inconvenient to arrange dividend vouchers and to go through all the other hoops then don't operate via a company.  You can't expect to have it both ways.

JMHO

Mark

Old Greying Accountant's picture

FFS

Old Greying Acc... | | Permalink

The Government vitually forced all sole trades in to incorporation with its nil band of CT, which was cynically done to get as many as possible into PAYE and P11D benefits, IMHO.

Many of these are not fit to operate this way, through no fault of their own, and the way things are makes reversing this uneconomical so they are stuck with it.

If sole a directors/shareholder writes himself a cheque and writes dividend on the stub, it is a dividend. Even if the company was insolvent, it was still a dividend, just an illegal one, and one he would be foolish to pay. The fact the bits of paper were not written up until later is quite frankly irrelevant to my mind, regardless of what our perverted law and HMRC espouse is so. Yes, of course we have to do it their way, doesn't make it right or mean we have to like it though!

The older I get the more p****d off I get by all the sactimonious pedantic f***wits who get off on this stuff. We are too short on this earth the go round in these pointless paper circles. All it does is creat jobs for those evolution should have left behind long ago.

Anyway, not long to go now the birds have started falling from the skies. I 've got 5/2 on BINKY, although it will be a close run thing.

G K Chesterton, he's THE man:

O God of earth and altar,
Bow down and hear our cry,
Our earthly rulers falter,
Our people drift and die;
The walls of gold entomb us,
The swords of scorn divide,
Take not thy thunder from us,
But take away our pride.

From all that terror teaches,
From lies of tongue and pen,
From all the easy speeches
That comfort cruel men,
From sale and profanation
Of honour and the sword,
From sleep and from damnation,
Deliver us, good Lord!

Tie in a living tether
The prince and priest and thrall,
Bind all our lives together,
Smite us and save us all;
In ire and exultation
Aflame with faith and free,
Lift up a living nation,
A single sword to thee.

 

 

 

I should know better ...

dwgw | | Permalink

... than to read anything including the words "this once great country".  But, silly me, I did.

I hope you're as concerned about stuff that's really important as you are about the relatively simple matter of paying dividends correctly.  Boy, you must get really cross sometimes!

 

Nichola Ross Martin's picture

More points to note

Nichola Ross Martin | | Permalink

Illegal dividends are chiefly a problem because the company is insolvent. So if a company is balance sheet insolvent at the time that the interim dividend was approved and paid, and the director failed to adhere to the necessary formalities too the dividend is unlawful. It should be repaid. However, if the company subsequently becomes solvent, all a director need do is to vote it again and it becomes lawful. The effect of that is a short-term illegal loan, if the director immediately pays the company interest on this loan there are no adverse tax consequences.

Also I note conflicting views from various decisions in the Tax Tribunals about the dates on which documents are prepared. It seems to me that the Tribunals are not overly worried about the fact that minutes are written up after the meeting even if there is a quite a substantial delay. 

Think about this: if you have a meeting, you review your accounts and your solvency position and vote a dividend, then you have voted a dividend. If you do not write that up contemporously then, yes, it might be bad housekeeping but it does not transform your dividend into any other type of payment. I note that HMRC often makes objections that accountants have produced board minutes for their clients at some date after the meeting. However, it would be quite unusual for all board minutes should be typed as the meeting progresses - of course this is possible if you have a lap top, but most often you note things down the old fashioned way and then write them up after. This is of course a million miles away from fraud. Your behaviour might be judged fraudulent if you did not hold a meeting and subsequently claimed that you had and then documented a fictional event.

We have board minutes, dividend warrants and client briefings for dividends available on our site too: www.rossmartin.co.uk

Paul Scholes's picture

Spectrum of possibilities

Paul Scholes | | Permalink

Nichola - I take your point and agree that, in practice, I doubt anyone will get too upset if the meeting/discussion took place and the minutes/written resolution followed sometime afterwards.  However I'm sure that there are still accountants around who send clients their accounts 8-9 months after the year end together with minutes & vouchers for dividends dated pre year end to clear the overdrawn DCA because "that's the way it's always been done".  In fact the last time I came across it, they also sent a waiver letter from the wife dated the day before the supposed meeting.

It is so easy to comply with this stuff I too fail to see why there is so much fuss and, let's face it, with the advantages the client and we gain from utilising the dividend route it's surely in our interests to make sure it works properly.

OGA....sounds like you were having a stressful Friday in January.  Never lose sight of the fcat that if it wasn't for legislation & regs (silly or not) we'd be out of a job......having said that doesn't mean I'm not looking forward to approaching semi-retirement!

KH's picture

Hi OGA, you might also like Alter Bridge .....

KH | | Permalink

Hi Old Greying Accountant ... Like your taste in music, and also quite like your taste in words, although I'm more a fan of Alter Bridge than G K Chesterton ... and probably of similar age to you, but you obviously still have the hair to show it! LOL!-- KH

Incorporated before 1 Oct 2009

gsgordon | | Permalink

CH website says the new Table A applies to companies registered on or after 1 Oct 2009.

Does that mean the advice given here does not apply to us, as we were incorporated before 1 Oct 2009? If it does not apply, can we now adopt the new Table A?

In particular, I'd like to be able to declare and pay a dividend from our private company without a meeting, as in - "Therefore suggest a standard text is prepared confirming due consideration of accounts and authorisation of the dividend (whether interim or final) which is signed and dated by the director at the time each payment is made."

I assume the text would include the words "The accounts to 'date' show that £XX is available as distributable profit. It was resolved that an interim dividend of £YY per Ordinary Share be declared and paid on 'date' to shareholders registered at the close of business on 'date'.", and this would be signed and dated by the 2 directors.

Or can anyone suggest a better form of words, or a free source of the words.

Dividend Tax

njiebaba | | Permalink

Can someone help me answer the following question

My company financial year end is 31st May 2014 and I declare dividend on 30th May 2014 for the year ending 31st May 2014. but only paid it on 15th July 2014. 

In which tax year of my personal tax return should I put the dividend and when is due date for paying the dividend tax.