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Incorrect reporting of dividends

What steps should I take?

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I have just taken over two companies' accounts as their accountant has retired.  One of the individuals is a director for both companies (but not sole director).

The issue is that the previous accountant has been reporting dividends received based on the companies' financial years (June and January), rather than those received by the directors in the tax year.  Should this be reported to HMRC?  Should the 2018 returns be amended or do I just include any unreported dividends in the 2019 returns and bring them up-to-date to the tax year, 5 April?  This has been done like this for years!

Advice would be appreciated and thank you in advance.

Replies (23)

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By johngroganjga
20th Mar 2019 21:34

I would just put the balancing figures on the 2018/19 returns.

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By andy.partridge
20th Mar 2019 21:42

What you do not want to do is continue to do things wrong just because that’s how it’s always been done.

If you do, you are endorsing bad practice and would have nobody to blame for it but yourself.

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Replying to andy.partridge:
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By cagasee
20th Mar 2019 22:10

That's the thing, I don't want to get it wrong and therefore the question is, do I amend last year's tax returns as well?

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Replying to cagasee:
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By andy.partridge
20th Mar 2019 22:26

I think you need to quantify and clarify, to yourself and us, the consequences of the bad practice from a tax and any other perspective.

I am unsure, for example, if the director’s personal tax returns are right or wrong. I am unaware of whether or not you are saying that the premature dividends in the company accounts are covering up overdrawn director’s accounts etc.

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Replying to andy.partridge:
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By cagasee
20th Mar 2019 22:47

What I'm saying is that one of the companies, for example, had a year end date of 30 June 2017 and it was only dividends for that 12 month period that were disclosed on the SA2018. Therefore, anything taken between July 17 and 5 April 2018, was not declared on the SA2018.

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Replying to cagasee:
Psycho
By Wilson Philips
20th Mar 2019 23:28

That doesn’t really help our analysis. The timing of the dividends is important. If for example a single dividend is declared at the year end then the tax return would be correct.

Similarly, if dividends are paid monthly, of a consistent amount, the tax return could still be correct.

As suggested above, to enable proper advice you will need to quantify the potential errors.

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Replying to Wilson Philips:
By johngroganjga
21st Mar 2019 05:50

Quote:

Similarly, if dividends are paid monthly, of a consistent amount, the tax return could still be correct.

No it wouldn’t because the dividends paid in the last period from July to 5 April would not have been declared and taxed.

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Replying to johngroganjga:
Psycho
By Wilson Philips
21st Mar 2019 07:58

What about the dividends paid in the period 1 July 2016 to 5 April 2017?

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Replying to Wilson Philips:
RLI
By lionofludesch
21st Mar 2019 08:25

Quote:

What about the dividends paid in the period 1 July 2016 to 5 April 2017?

Surely it's the period 1 July to 5 April in the very first year that's the issue. Unless there was Overlap Relief created.....

We're guessing, aren't we ? How long has this been going on ? Is the taxpayer basic rate or higher rate ? How much tax is at stake ? In particular, does it go back before dividend tax was introduced ?

He could have overpaid in some years if the dividends weren't consistent.

I'd crunch the numbers and then put it to HMRC. But, certainly, continuing the error is not an option.

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Replying to lionofludesch:
Psycho
By Wilson Philips
21st Mar 2019 10:02

I agree entirely. Apologies if my post was taken as suggesting that no action was required.

What the questioner should do is look at all returns that are within amendment/discovery window and compare entries with dividends received in the tax years. And then, if necessary, amend the 2017/18 return and make a voluntary disclosure for the others.

What they should not do is simply add the dividends from 1 July 2017 to 5 April 2018 to either the 2017/18 or 2018/19 return.

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Replying to Wilson Philips:
RLI
By lionofludesch
21st Mar 2019 10:04

Quote:

What they should not do is simply add the dividends from 1 July 2017 to 5 April 2018 to either the 2017/18 or 2018/19 return.

Absolutely agree.

As the taxpayer is higher rate, there's probably thousands of pounds in tax at stake here. Yet the proposal seems to be to brush the issue under the carpet.

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Replying to Wilson Philips:
By johngroganjga
21st Mar 2019 10:03

Already declared and had tax paid, albeit in the wrong year.

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Replying to johngroganjga:
RLI
By lionofludesch
21st Mar 2019 10:15

Quote:

Already declared and had tax paid, albeit in the wrong year.

You don't know that the right tax has been paid.

There's nothing like sufficient information.

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Replying to johngroganjga:
Psycho
By Wilson Philips
21st Mar 2019 11:00

Exactly. The fact that dividends between 1 July 2017 and 5 April 2018 have not yet been taxed doesn't necessarily make the 2017/18 return incorrect. It probably is, but for argument's sake if dividends have been consistently paid at £1,000 per month, the 2017/18 return would correctly show £12k of dividend income.

In reality, there is likely to be a discrepancy in the 2017/18 and/or earlier returns but as has been pointed out there could be a net overpayment or a net underpayment. There's only one way to find out.

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Replying to cagasee:
By SteLacca
21st Mar 2019 07:59

And anonymity busted, though I'm curious as to why you felt it necessary to post anonymously in the first place?

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Replying to SteLacca:
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By cagasee
21st Mar 2019 09:16

Anonymity not really an issue to be honest; nothing to hide, just looking for helpful advice

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By Cheshire
21st Mar 2019 07:55

Declared v 'taken' mix up?

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By atleastisoundknowledgable...
21st Mar 2019 09:14

As per johngroganja, just put the balancing figure on 18/19 and do it as best you think going forward.

Of course, if one div was declared each year at the YE, then the SATRs are (potentially) correct. Is there any paperwork? Has the client asked you to correct the previous ones.

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Replying to atleastisoundknowledgable...:
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By cagasee
21st Mar 2019 09:20

No paperwork, just spreadsheets where taken monthly dividends and accounted for those in the financial year. The client is a higher rate tax payer. They haven't asked me to correct previous ones, so I will take yours' and johngroganja's advice (thank you) and correct from here on. Even when the accountant explained it to the client, they gave the illustration as you would for a sole trader who has a different year end date. Thank you for your help

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Replying to cagasee:
RLI
By lionofludesch
21st Mar 2019 09:57

Well, you must do as you think fit but I think you might have some explaining to do if HMRC pick up on it.

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Replying to cagasee:
Psycho
By Wilson Philips
21st Mar 2019 10:08

Quote:
They haven't asked me to correct previous ones,

That doesn't get you off the hook. You should do as I suggested above and compare the return entry with the amount of actual dividends received for each tax year that is still "open".

If you discover an overpayment of tax then there is the possibility of an overpayment relief claim. On the other hand, if there has been an underpayment you have an obligation to advise the taxpayer to amend/disclose. If he were to refuse to do so then you'd need to consider your next steps.

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By codling
21st Mar 2019 11:55

What this sound like, is that amounts on account of a dividend have been drawn monthly during the financial year (hence the spreadsheet heading) with the actual dividend being declared towards the end of the year to mop up the amounts drawn. Clearly meeting minutes and a dividend certificate should have been prepared but it looks like they have not been. I would suggest that the old accountant is approached to confirm this is what has happened as the dividends may well have been correctly reported as mentioned by Atleast... On this scenario you may need to consider looking to see if there may be a beneficial loan charge.

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By cagasee
21st Mar 2019 14:57

Really grateful for everyone's opinions. The fact is, I want to do the right thing. So, it's back to the old accountant for the facts and then we'll assess the implications. Sorry if I haven't been specific enough!

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