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DIVIDENDS

DIVIDENDS

Hi, just wondering if anyone can give me some advice. I have a client with a Limited Company, year end is 31st July 2017. The client is the sole director and shareholder of the company. I am in the process of doing the accounts for the Ltd Co and also her personal tax return for 16/17. She has declared dividends for that year of £20,000 and after a conversation with her  about her tax return it seems the reason for doing this is to make her income look better as she intends to apply for a mortgage soon. I can see that the company does have sufficient retained profits to pay that dividend. On the other hand the company owed her around £25k when looking at her directors loan a/c (this is without the dividend included). The dividends have not yet been paid so that will take the loan up to £45k . My questions is can the dividend still be declared? I know it sounds silly but I am wondering if the company will ever pay back the loan and the dividend . What if she gets her mortgage and defaults on the payment they may question the dividends in the tax return?

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21st Jan 2018 09:49

Whether declared or not as the dividend has not been paid it will not go into 31 July 2017 accounts nor your client's 2016/2017 tax return.

Sounds like your client is trying to rewrite history now they want a mortgage.

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By Ruddles
to Wanderer
21st Jan 2018 10:24

Depends on what the accounts (more importantly, the accounting records) show - if the dividend has been credited to the DLA then it has been paid.

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to Ruddles
21st Jan 2018 11:30

OP says:-

"On the other hand the company owed her around £25k when looking at her directors loan a/c (this is without the dividend included). The dividends have not yet been paid so that will take the loan up to £45k ."

Based on that the £20k has not yet been credited to the DLA.

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to Wanderer
21st Jan 2018 11:40

Good point, but unless the OP engages we don't know if the OP is worrying about nothing, has identified a problem and is resisting their client's assertion, or is attempting to rewrite history.

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By Ruddles
to Wanderer
21st Jan 2018 12:15

There are (at least) two interpretations to the OPs words. I interpreted them as meaning that the loan balance was £25k before crediting it with the dividend and that because the dividend had not yet been paid out in cash the DLA had in fact been credited.

But I agree that your more literal interpretation is just as likely (perhaps more so) to reflect the facts.

But if it hasn’t yet been credited to the DLA then it’s not a 2016/17 dividend (I’m assuming that the paperwork - if there is any - is evidence of an interim dividend).

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to Wanderer
21st Jan 2018 11:59

Wanderer wrote:

Whether declared or not as the dividend has not been paid it will not go into 31 July 2017 accounts nor your client's 2016/2017 tax return.

Sounds like your client is trying to rewrite history now they want a mortgage.

These are bold statements.

We don't know when the dividend was declared. We just know it has been.

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to lionofludesch
21st Jan 2018 12:26

When (in recent years) is the declaration date relevant for including in the accounts or tax return?

It's the payment date that determines which years it goes into. I accept that payment can be by crediting to DLA but the OP hasn't clarified when / if that has occurred.

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to Wanderer
21st Jan 2018 12:33

Wanderer wrote:

When (in recent years) is the declaration date relevant for including in the accounts or tax return?

It's the payment date that determines which years it goes into. I accept that payment can be by crediting to DLA but the OP hasn't clarified when / if that has occurred.

That's exactly why your statements are bold.

Ascertain the facts first. Then give your opinion.

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to lionofludesch
21st Jan 2018 13:18

Facts at present as stated by the OP are:-

"The dividends have not yet been paid"

Maybe if the OP comes along with different facts the opinion would be different.

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to Wanderer
21st Jan 2018 13:22

Sure. Let's gather facts and clarifications.

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By zebaa
21st Jan 2018 10:03

If a dividend can be paid it is not your call to make, though you may offer advice.

If it goes into the DLA it will need tax paying and it most certainly counts as paid.

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21st Jan 2018 10:25

You have said the company had sufficient reserves to pay the dividend so what's the problem?

Ah, actually you didn't quite say that, so you might need to be more precise with your analysis.

1. When was the dividend declared? Clearly, it must have been pre-06/04/2017 otherwise it's a 2017/18 tax return issue and not 2016/17.
2. At the time the dividend was declared were there sufficient reserves (as opposed to the year-end or 'now').
If you are clearer with your question you will get clearer answers.

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