Carried forward loss after dividends

Carried forward loss after dividends

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Dividends can only be paid if company is in profit after taxation.  The company shows a profit of £38k before taxation. 

On tax computation after tax the company is in profit £35k. After paying dividends of £34k this will show a carried forward loss of £4K on the balance sheet in the accounts. Can any one advise if this is an acceptable condition in the accounts. 

 

 

Replies (12)

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RLI
By lionofludesch
26th Jun 2016 11:37

Yes, I can.

No, it isn't.

Sounds like you have some deferred tax in there, based on the usual sketchy details we get, and you need to provide for that. It's not distributable.

£30k ish is the maximum dividend - 80% of £38k.

Admittedly, a few assumptions in that. You have better information.

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Replying to lionofludesch:
By johngroganjga
26th Jun 2016 11:40

My reading is that P&L was overdrawn by £5k at the beginning of the year.

Of course you are right that if deferred tax needs to be provided and hasn't been the figures become worse.

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Replying to johngroganjga:
RLI
By lionofludesch
26th Jun 2016 11:56

Could be. Who knows ?

I was simply comparing the profit to the tax charge but your interpretation is equally valid and, indeed, likely.

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By johngroganjga
26th Jun 2016 11:36

Of course it is acceptable to show those figures in the accounts, if they are the right figures of course. Why would you think it would be appropriate to show different figures?

But I think you are asking the wrong question. The question you should be asking is how to advise clients who have paid themselves dividends in excess of their company's distributable profits. The answer is that you should give them a mild rebuke and advise them to be more careful in future.

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Replying to johngroganjga:
RLI
By lionofludesch
26th Jun 2016 11:39

Eh dear - I answered the wrong question, didn't I?

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By Mary Lou
26th Jun 2016 13:05

T be more prsice

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By Mary Lou
26th Jun 2016 13:05

T be more prsice

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By Mary Lou
26th Jun 2016 13:17

The accounts profit is £38k. After add backs depreciation, entertaining etc. profit is is £45k. Corporation tax is £8900 leaving £36k tax profit. If we minus £34k dividend between 2 directors there is £2k profit after tax.

When transferring these figures to balance sheet, profit £38k minus tax £8900 minus dividends £34k the c/f loss is £4.9k. There are no b/f reserves from previous year. My question is can the accounts show a loss c/f if dividends have been paid out. Hope this clarifies my previous question. Thank you.

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Replying to Mary Lou:
RLI
By lionofludesch
26th Jun 2016 13:51

Well, yes, you should show that position but the dividends are illegal and liable to be repaid if a creditor or HMRC or somebody with an interest wants to challenge them.

The company has made £29k, no reserves b/fwd and the directors are wanting £34k of that £29k. Just not enough in the pot.

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Replying to Mary Lou:
RLI
By lionofludesch
26th Jun 2016 20:54

Dunno how that double post happened.

I blame the new improved website.

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Replying to Mary Lou:
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By the_fishmonger
27th Jun 2016 12:48

The profit/loss for tax purposes has no relevance to the accounts, aside from allowing calculation of the tax provision.

The accounts profit/loss *after tax* is the amount posted to reserves, i.e. £29k (£38k-£9k) profit is transferred to reserves after tax.

The £34k paid as dividends could be an illegal dividend. One is assuming that you are intending to declare this now to comply with the letter of the law and not creating the dividend as if it had been paid in the period.

Had this properly been paid 'in period' and the management accounts were showing sufficient reserves, then it could be legal.

That should be enough for now.

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By pacta
26th Jun 2016 13:56

I usually just bob a disclosure note in the accounts stating that the shareholders are aware of the illegal dividend and will return funds should it be necessary.

As John says, a little telling off helps too.

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