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How to deal with directors "drawings"?

How to deal with director who keeps taking money from Ltd Co adhoc

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Director has taken out £40k from Ltd bank. There is no regularity or pattern, some times multiple times in a week. The Ltd is not paye registered and has no other employees. The only thing I could think of is put to DLA and declare as dividend but HMRC could challenge its a wage but on the same token there is no regularity either with the amounts taken or frequency to classify as a wage. 

To complicate things the client now wants to change accountants (hence why I'm posting as anonymous) as their friend has an accountant who has no issues with the friend taking money in this way. I refuse to release the final accounts and have been paid. I don't want to cause an issue by refusing to release the final accounts but at the same time don't want to fudge anything that comes back to bite me due to the clients own actions. 

Replies (8)

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By Andy556
05th May 2021 22:01

It sounds like drawings.
If they haven't had any dividends then it will be an overdrawn directors loan (if there isn't already a big enough credit balance to cover it) with potential tax complications that come with that

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Replying to Andy556:
By Paul Crowley
05th May 2021 22:12

Dividends are supposed to be declared in the year, not when accounts are prepared
New agent can fix the issue

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By thestudyman
05th May 2021 22:21

You are booking to DLA. If you do not have evidence to the contrary that this is dividend or salary related (and you should know this!), then this is the correct treatment.

Dividends should be declared before making payments, with some form of documentation like board minutes.

How come you are not releasing the accounts if you have been paid?

I would not worry about this.

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By Hugo Fair
05th May 2021 23:05

"there is no regularity either with amounts taken or frequency to classify as a wage" ... makes no sense. Wages (or to be precise pay via PAYE) can be at any frequency and be of any irregularity of amounts SO LONG AS it is processed and reported (via RTI) to HMRC before each payment of net pay to the director.
So that option has departed - unless your client is prepared to pay you to do all the retrospective processing and filing AND to pay all the associated penalties to HMRC.

"The only thing I could think of is .. declare as dividend" ... also makes no sense. As mentioned by Paul and thestudyman, dividends should also be declared with relevant documentation during the year (not when the accounts are being prepared).

So all that's left is Director's Drawings (logically from a DLA that can be set up after the event, even though it shouldn't really be done that way).

What your (about to be ex-)client is presumably unaware of is that he/she has NOT extracted money free-of-tax AND that they now owe all the £40k to the company ... and there's still all the myriad tax implications yet to come.

However, I can't see why you "refuse to release the final accounts" if you've been paid. Just be grateful that some other agent will have the joy of those conversations about rectifying the situation with the recalcitrant client in the future.

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By Truthsayer
05th May 2021 23:08

The truth is that nobody will care if you do a dividend in retrospect, so you should not worry about doing it that way to clear the DLA. After all, what are drawings other than drawings of after tax profit, aka dividends.

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By SteveHa
06th May 2021 08:24

Not to mention the BIK, so PAYE registration for submission of P11D/P11D(b) will still be needed.

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By bernard michael
06th May 2021 09:15

How have you treated the "drawings" in the "final accounts" ??

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Replying to bernard michael:
A Putey FACA
By Arthur Putey
06th May 2021 09:33

.... and if you haven't treated them as dividendss, what have you put on the CT600A?

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