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Directors Loan Accounts and Dividends

How to declare dividends & DLA accounts at year-end

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I would appreciate some help

I have a client who are a family firm. At year-end, the four DLA's had a balance, these total £40878.05, then there were dividends taken of £89804.00. This is how the Directors were paid historically.

However, in previous years the profit has been higher than last year, the 'shareholders funds' total £61774.00

What is the best way to deal with the dividends & DLA accounts? if I run the payroll for the two working Directors, there is a huge amount of PAYE Tax & NI to pay.

Would really appreciate your thoughts

Many thanks


Replies (7)

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By David Ex
07th Jul 2021 18:47

You can't (strictly) pay a dividend other than from distributable reserves.

Saying, in reference to dividends, that "This is how the Directors were paid historically", is rather worrying but possibly just a rather injudicious choice of words. Dividends are paid to shareholders for being shareholders not as remuneration for their work. Whether HMRC ever take the point, I don't know, but best not to give them to opportunity.

Just reread. Are you saying the "dividend" has been declared and paid?

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By Matrix
07th Jul 2021 18:47

If the dividends were properly declared and they have negative reserves then you can only record what happened. Is the £40k an additional debit balance?

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By lionofludesch
07th Jul 2021 19:18

PAYE is nothing to do with this. Put it out of your mind.

It's not entirely clear when these dividends are paid, nor what the split is between the participators. It may or may not be relevant. Provided the dividends are paid within 9 months of the year end, no s455 charge is payable, subject to the split referred to above.

The downside is that, if the dividends have been paid unlawfully, they could become repayable in certain circumstances. The reality is that, if you keep paying your creditors, there are unlikely to be any claims for repayment.

No guarantees though. It's a pot-holed road that the company is treading.

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By Leywood
07th Jul 2021 19:31

''At year-end''

what date is year end?

When exactly were the dividends declared?

When are you running the payroll, ie at what date?

Sounds like there is a re-writing of history but your post isnt very clear.

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By SXGuy
07th Jul 2021 21:32

You can't run payroll for past drawings just because you think there's either a tax saving or it makes life easier. Salaries don't work like that.

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By Paul Crowley
07th Jul 2021 22:08

How it works
Directors look at the sage TB and can only declare dividends if there are sufficient reserves
If they get it wrong then no dividends at all
They took loans
Did any money move?
Not saying whether the balance is plus or minus prevents any useful help
It sure as eggs aint no paye unless RTI'd

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By Lucy N
07th Jul 2021 22:43

I'm sorry if this sounds rude but your question shows a lack of basic understanding of the workings of a directors loan account and dividends / salary- are you sure you should be looking after this client?

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