One man shareholder/director operated company (oldco) for a year, then set up another company (newco) to work with someone else (same business, same clients etc). I did accounts for oldco to 30 Sept 2011, and during the second year oldco stopped trading. I don't deal with newco. As is often the case, client would withdraw money, annotating it as "div/exps" - some of the payments were made in the early part of the 2011-12 accounting period, and reported on client's income tax return for 2011-12. It now transpires that the accounts for y/e 30.09.12 show a loss, and not enough reserves to warrant the dividend payments.
Draft accounts show insolvent position; however, there are no 3rd party creditors (apart from my fee which I can recover from him personally) - it's just amounts owed to him as he had paid for various expenditure out of his own funds. If I "undo" the dividend via the director's loan account, what are the implications for his personal tax return?
My concern is that the dividends seem to have been "illegal", but that as no 3rd party liabilities, do we have a problem?
If I had had full info earlier, things might have been a bit different, but this is one of those last-minute type clients, and the accounts are due my the end of the month...
Has anyone had to deal with this situation before, and/or any suggestions or comments gratefully received.