Limited company - 2 shareholders
Each takes the basic £5435 in salary & the rest in dividends
This is usually a set amount each month
Would the Revenue want to recalssify this as earnings & thus raise NI issues?
Any advice welcome
Victoria Chalmers
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Replies (6)
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dividends
I just wanted to know if HMRC make a habit of disallowing dividends if there are regular monthly or weekly drawings (and presumably saying that they should be treated as net salary) Just a general enquiry, rather than getting into the nitty gritty of it.
They might want, but cannot do it!
This comes up frequently. If you do a search on "minimum salary" in Any Answers you will find lots of relevant threads and some not so relevant. This one from a year ago, £5000 salary and dividends still?? covers most of the angles and a few extra!
Clarification from Driscoll, please
The response gave the impression that every visit to the cashpoint might need to be classed as a dividend. This is not the case, of course. It may be to draw petty cash, a expense advance, repayment of a loan, expense reimbursement, a loan, salary, blah blah. The transaction should be accounted for what it is, nobody is suggesting it should be assumed to be a dividend. It is likely it isn't.
Paperwork not required!
The legal requirement is that there was a directors meeting held at which the distributable reserves were considered and the dividend approved. A one-man company can therefore "have a meeting" at the cashpoint immediately before drawing the money. A "minute" of a meeting is simply a written record of the meeting - it doesn't need to happen at the time of the meeting. Obviously if there is more than a single director, then a quorum of directors have the meeting- again can be done verbally in front of the cash machine if say Husband and wife are the only directors and together at that moment. Obviously, having proper paperwork and minutes is helpful and would provide more support against challenge (especially if retained profits could be argued to have been inadequate in which case management accounts are considered useful proof that the reserves were OK after all).
As for dividend tax vouchers, it is permissible to do a single tax voucher for all dividends paid during the tax year.
So, as long as there is no doubt about availability of distributable profits and it is a single director company there is nothing to stop the dividend paperwork being done once a year if it has to be that way. It is clearly better to keep up with it, but falling behind is not a disaster.
Paperwork
Driscoll, every dividend should be backed up by the appropriate paperwork - meeting minuted and tax voucher.
If your client collects his dividend from a cash point then there should still be the appropriate paperwork in support.
However, I doubt that each visit to the cashpoint is to pick up a dividend, but is debited to the DLA in which case no such paperwork is required.
what about in practice ?
In that linked thread, Stephen Holloway makes the point about weekly dividends being perfectly legal, which is true. But I am getting worried about people always saying on here that all dividends have to be properly documented (presumably minuted meetings) which presumably they normally arnt.
I have checked with other accountants, and they have said that they have never had problems with crediting loan accounts with bi-annual or annual dividends, and so far, I havnt either. So has anybody actually had problems, or should I get every client to have a minuted meeting every time they take any money out or go to a cashpoint ?
I'm only talking about what has happened in practice, not the theory behind it.