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co-mingling of "salary" and dividends

co-mingling of "salary" and dividends

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New client has arrived in a panic with looming filing dates has been paying himself a monthly "salary" (no reporting / no PAYE scheme registered as below NI threshold) and "interim dividends" (first year of trading) as one cash transfer each month of a few thousand. 

Is it reasonable to accept and account for the transactions according to what he thought he was doing or could HMRC likely challenge and treat as Director's loan potentially within s455?  Any advice from similar experience welcomed.

 

 

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RLI
By lionofludesch
19th Sep 2016 16:47

Well, I think the client's going to have trouble justifying that if HMRC challenge it.

On the one hand, what you should do is treat them as loans and vote a dividend now (or soon) to clear the balance. No s455 if you're still within 9 months of the year end, but you're stuck with Dividend Tax.

On the other hand, so far as I know, dividends don't legally have to be paid separately from salary, though I'd recommend they were.

Educate your client for the future so it doesn't happen again.

Why is he paid less than £112 a week ? Rather do without a pension than send in his RTI every month ?

Thanks (1)
Replying to lionofludesch:
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By Sharyn80
19th Sep 2016 16:59

Thanks lionofludesch - this is one of many educational chats we are having at present, and yes, you are correct regarding pensions. That has now changed!

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By SteveHa
19th Sep 2016 16:50

If you treat as a loan and it exceeded £10k at any point, don;t forget you have a BIK.

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By cheekychappy
20th Sep 2016 08:14

Dividends do not have to paid separately to salary, loans, expense claims, or any other transfer. It is just good practice to do so.

The client paid themselves a salary. They also declared a dividend. That is a matter of fact. The paperwork may not be robust, but that doesn’t change the events.

Had the client just been taking the money as though it was their own, I would probably have a different view. But the client in this case thought about the transactions and decided to pay a mixture of salary and dividends.

In fact, I am nearly certain that somewhere, there will be board minutes that confirm the salary and declaration of dividends.

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Replying to cheekychappy:
By JCresswellTax
20th Sep 2016 09:04

cheekychappy wrote:

Dividends do not have to paid separately to salary, loans, expense claims, or any other transfer. It is just good practice to do so.

The client paid themselves a salary. They also declared a dividend. That is a matter of fact. The paperwork may not be robust, but that doesn’t change the events.

Had the client just been taking the money as though it was their own, I would probably have a different view. But the client in this case thought about the transactions and decided to pay a mixture of salary and dividends.

In fact, I am nearly certain that somewhere, there will be board minutes that confirm the salary and declaration of dividends.

I like the practical cut of this man's jib.

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Replying to cheekychappy:
RLI
By lionofludesch
20th Sep 2016 10:12

cheekychappy wrote:

Had the client just been taking the money as though it was their own, I would probably have a different view. But the client in this case thought about the transactions and decided to pay a mixture of salary and dividends.

This is the key point.

And minutes don't have to be written up immediately.

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