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Dividend payments and book keeping records

Paying dividends from cash in hand.

My new client owns a beauty salon and it is 100 percent cash business. She incorporated about 18 months ago without the help of an accountant and never had proper book keeping system in place. However,  she has  cash register Z reports for the whole year , bank statements and expenses receipts. Now is the time to file CT600. Her sales for the year were around £50,000 and expenses around £22000. Profit of the company is around £27000 after depreciation. She has been using company money (cash in hand) for her personal expenses and only deposited a fraction of total sale proceeds in the bank. Now she wants us to treat £20000 as dividend paid (from cash in hand) in the last month of the accounting period and leave the balance for corporation tax etc. What are the repercussions if her case later on is selected for audit? There are no dividend transactions in her bank statements.

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13th Aug 2017 20:10

The 'what if' is not really relevant, is it? Shouldn't you be concerned with doing what is right and not what happens if you get caught doing wrong.

You will see from all other threads that you can not rewrite history. If your client wants to declare a dividend today the date in the books is today and not several months ago.

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13th Aug 2017 20:10

To record income

Dr Cash
Cr Sales

To record withdrawals from cash

Dr Director's Loan Account
Cr Cash

To record dividend

Dr Dividends
Cr Director's Loan Account

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14th Aug 2017 09:36

This is possibly just a case of your client not being aware of the duties under S386 of the Companies Act 2006, or maybe legislation in general. Unfortunately there may be some unforeseen knock on conesquences of this. Specifically to your question about the repercussions later; if everything is filed on time and the correct amount of tax is paid according to what actually happened then probably nothing; but if some transactions are misrepresented to evade paying tax the outcome may be different. In the latter case your client's view and HMRC's view may differ but then if proper records were kept at the time!

Consider whether the requirement of Part 23 Companies Act 2006 have been followed.

Hopefully you can guide your client to acting properly both now and in the future - good luck.

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14th Aug 2017 12:12

Your client isn't actually far off the mark.

It's just the procedure and timing that she has wrong.

If she votes a dividend in Month 12, that's grand. The problem is, she can't come along in Month 17 (or whatever) and declare her dividend in Month 12.

These things will become more important if we ever move to quarterly reporting. Get them right now.

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By AJ05
15th Aug 2017 10:36

On this occasion, I would go with @scalloway's suggestion and just make sure that Directors loan account(dla) is fully paid off with 9 months after the year end to avoid paying tax on the loans. Then going forward, you should advise your client against withdrawing funds just as she wishes. Maybe, you need to explain to her the difference between operating as a sole trader and a ltd co. @andy.partridge is right, you definitely can't re-write history and you can't keep doing it like this going forward. You must explain the consequences to your client. Good luck.

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