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Taking dividends instead of expenses

Trying to figure out the most efficient system capturing business miles

Just wondering how my fellow accountants deal with clients who forget to reimburse themselves expenses but still take out dividends that end up with adiditional tax implications

I have a few Ltd sole director clientsthat spend around £8000-£10000 in mileage and we only find out normally when we prepare their accounts yet they seem to declare the dividends but not pay themselve the £8000 or so that is owed.  This just increases the amount of dividend tax payable when they could be taking out expenses instead.

Also, they send a whole year of mileage on excel spreadsheets or on paper but often information is missing.  Thinking of trying to get them using a mileage app but the trouble maybe getting them to state the reason for the travel.  I am not convinced the mileage is correct either and seems inflated.  Just trying to figure out the most efficient system trying to deal with business mileage 

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07th Feb 2019 01:16

I believe there are apps to capture details but, if you doubt the integrity of your clients ("I am not convinced the mileage is correct either and seems inflated"), I'm not sure that helps you.

All you can do is explain the situation to them and advise that only credible records will pass muster.

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By Matrix
07th Feb 2019 06:22

Once you put the expenses through then are there sufficient reserves to pay a dividend? Have you explained to them that dividends can only be paid out of distributable profits?

Get them to track and claim the business mileage monthly in their software, make sure they keep records and check the P&L before they declare dividends.

My clients only tend to declare dividends having discussed the company and their own tax position with me.

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to Matrix
07th Feb 2019 18:03

I agree if clients were more disciplined this is what they should no but I am sure we all have clients that are running around like a headless chickens and suddenly needs cash and only thought is to take out a round sum figure entering it as dividends.

Thats interesting that your clients discuss it with you before taking out dividends. For some clients that could be quite time consuming and wondered if many accountants actually are that conscientious.

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to JimLittle
07th Feb 2019 18:14

JimLittle wrote:
.... and suddenly needs cash and only thought is to take out a round sum figure entering it as dividends.

Planning ahead is the key to tax planning.

Doing the first thing that comes into your head is likely to cost you money.

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07th Feb 2019 08:04

Mileage apps don't work. They sound great but they have the same flaw as more traditional methods - the user.

At the end of the day, credibility is the director's problem.

I wouldn't be going into his mileage with a fine tooth comb but, on the other hand, I wouldn't be including huge wedges of mileage that didn't stack up against my common sense.

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07th Feb 2019 09:08

Just ‘correct’ something posted erroneously as ‘dividend’ to ‘repayment of expense claims’.

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to atleastisoundknowledgable...
07th Feb 2019 17:57

Technically that wouldn't be correct if they say they formally declared a dividend (only one does that) and stated dividend in the accounts and in the reference box when making the actual bank payment.

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07th Feb 2019 09:56

Jim - go through your rationale as to why you think that taking a dividend is more tax efficient than claiming mileage.

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to lionofludesch
07th Feb 2019 17:52

The point was if the director needed cash more inclined to take out dividends rather than take out expenses as they seem to forget they can take out expenses tax free

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to JimLittle
07th Feb 2019 18:06

Ah well - he just needs "reminding" doesn't he ?

Is it not easier to claim expenses than go through all that calling a meeting, passing a resolution, writing up the minutes, issuing a dividend voucher ? Dividends are a lot of work.

But - if he'd rather pay extra tax - crack on is what I say.

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07th Feb 2019 21:35

It’s a client management issue.

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