Share this content
0
518

Director's Loan and Dividends

Can I net them off?

Probably a very basic question. I'm a bookkeeper with a new client who is in search of a new accountant (I've told him to get on with this) so there is a knowledge gap here. His accounts have been neglected for some time...

The Director's Loan Accounts are in credit as due to a mileage claim for the year (2 directors). However they've also made greater monthly 'dividend' payments to their personal accounts on top of payroll. These have been posted to the dividend account.

Am I correct in treating the whole lot as director's loan to effectively net the two off, thereby making a zero balance on DLA and lower dividends? Or is there any issue as to when the dividends are declared (i.e. dates that should be on the minutes and vouchers) to avoid building up the loan accounts too high? I'm not sure if this matters at all between year ends and if the postings on the software need to be a specific way, or whether I can simply journal it all at the year end date.

Apologies if any of this is unclear or sounds daft,

Replies

Please login or register to join the discussion.

07th Dec 2018 12:02

It’s not a case of netting them off. It’s a matter of where the “dividend” payments should have been posted. If they are properly documented dividends, that is what they are. Otherwise they are loan repayments.

Thanks (0)
07th Dec 2018 12:09

No you certainly don't net them off against dividends.

In future the directors can have their DLAs reimbursed to bring them back to zero or keep them running and set private expenses incurred by them but paid by the company against them.

Thanks (0)
07th Dec 2018 12:10

Well, it depends.

The first thing to establish is whether the 'dividends' are 'dividends' or dividends.

Have they been properly declared ? Are they in the correct ratios ? Or are they just directors drawing a few quid from the cashpoint when they're short of brass ?

Thanks (0)
to lionofludesch
07th Dec 2018 12:42

Dividends were posted to dividends. This is a bookkeeping question. Not sure why people are trying to muddle the OP with everything they know about everything.

Thanks (0)
07th Dec 2018 12:18

John is right, the payments were either dividends or they were drawings from directors' loans.

There is however the possibility that, even if they wrote "dividends" in the books, they did it in error, not realising that they could have, instead, just drawn on the loans. Also, I dare say there were no minutes of a meeting or written resolution, approving the dividends, or tax vouchers?

If, after being told of the rules and the effects on their personal tax, they realise they made an error in describing them as dividends then, I'd say, you can re-post them to the loans.

Unless you handle their personal tax affairs it may be better to wait for an accountant to be appointed?

Thanks (0)
07th Dec 2018 12:32

I can't resist asking whether the Company is solvent...?

If it's insolvent then any dividends drawn whilst insolvent will be illegal.

Thanks (0)
to Insolvency Practitioner
07th Dec 2018 12:39

Do try to resist. It's a bookkeeping question from a bookkeeper.

Thanks (0)
to Insolvency Practitioner
07th Dec 2018 12:46

Insolvency Practitioner wrote:

I can't resist asking whether the Company is solvent...?

If it's insolvent then any dividends drawn whilst insolvent will be illegal.

Or unlawful.

Thanks (0)
avatar
to lionofludesch
08th Dec 2018 16:56

Well said! Not many appreciate the difference between illegal and unlawful. While we know what they mean, it can be irritating when the wrong term is used.

Thanks (2)
to tonycourt
08th Dec 2018 18:42

Sorry to all but, can’t resist, is it the case that unlawful is against the law, whereas illegal is a sick bird?

Thanks (0)
avatar
to Paul Scholes
08th Dec 2018 18:54

Might be a role for you writing jokes for Christmas crackers. But don't give up the day-job just yet!

Thanks (0)
avatar
to Insolvency Practitioner
07th Dec 2018 12:47

Obviously I'm lacking qualifications here but all looks in very good order in that regard.

Thanks (0)
avatar
07th Dec 2018 12:44

Thank you all so much for your replies.

Its all a series of 12 equal 4 figure sums transferred monthly to the directors but I'm sure they're not properly documented dividends with vouchers and minuntes (to be established). If so, these should all be posted to DLA making those accounts in debit throughout the year?

Is there any way they are allowed to produce dividend vouchers now, backdated to the year end date, given that they were not aware of the profits available back at the time of year end date?

Thanks (0)
to CollaterlieSisters
07th Dec 2018 12:52

You're going to regret asking that ...

Thanks (1)
to CollaterlieSisters
07th Dec 2018 12:56

CollaterlieSisters wrote:

Thank you all so much for your replies.

Its all a series of 12 equal 4 figure sums transferred monthly to the directors but I'm sure they're not properly documented dividends with vouchers and minutes (to be established). If so, these should all be posted to DLA making those accounts in debit throughout the year?

Is there any way they are allowed to produce dividend vouchers now, backdated to the year end date, given that they were not aware of the profits available back at the time of year end date?

They don't sound like dividends to me.

Nothing to prevent them declaring a dividend today, though, and crediting it to the directors' accounts.

Thanks (0)
to CollaterlieSisters
07th Dec 2018 13:00

Stop now. You are out of your depth. Leave it to the accountant.

Thanks (0)
avatar
By Jdopus
to CollaterlieSisters
07th Dec 2018 13:04

Honestly, I would suggest that you should probably just stop now and not attempt to deal with Dividends without knowing what you're doing. If the client refuses to appoint a proper accountant that's their own fault, but you won't make things any better by trying to muddle through it and you could potentially create tax problems for your client by doing this incorrectly and not knowing the tax implications of the postings.

Speaking as an accountant, I'd far rather deal with a set of books that aren't completely up to date than deal with a set of books where someone has made a mess attempting to post transactions they don't fully understand.

Thanks (0)
avatar
to Jdopus
07th Dec 2018 13:09

So in summary, message to the client: no do not attempt to make out you declared any dividends and hire an accountant immediately.
I shall leave the postings as they are then and let someone else pick it up.

Thanks (2)
to CollaterlieSisters
08th Dec 2018 17:08

No harm in passing on your concerns to the accountat. obviously.

Thanks (0)
avatar
to CollaterlieSisters
08th Dec 2018 17:09

I'm not aware of any company law requirement to produce vouchers for a dividend - so a payment can be a dividend without a voucher. However, if they are interim dividends they must have approval by the board, or approval by the shareholders for final dividends.

As regular payments were might it is conceivable that the directors had a meeting (a chat over a pint or glass of vino) and decided among themselves that they would, profits permitting, pay a dividend monthly, but then failed to produce minutes of the meeting.

I'm strongly against rewriting history to suit current needs, but don't write something off as not having happened simply because there isn't proper paperwork. No paperwork may point towards the sums not being dividends, but are not conclusive.

Thanks (0)
Share this content