I have a query about Dividend arrears distribution. Can this be shown in the books as an adjustment againt expenses of a company's director? Say for e.g. Dividend Arrears is 15k, and Expenses is £9k, can this 9k be adjusted against 15k or is there any particular rule that a dividend arrear can only be distributed as dividends?
Actually the reason why I'm asking this query is that this company is making a loss for the financial year 11/12 and the director wishes to adjust his dividend arrears from earlier year against some expenses he incurred in 11/12. Is it possible to adjust this way?
I look forward to your responses.
Many thanks,
VSikdar
-- Edited by vsikdar on Thursday 23rd of August 2012 04:17:32 PM
A dividend is only available from post tax profits.
No profit. No dividend. So unsure what you mean by dividend arrears.
If the director was allocated a dividend FROM GENIUNE POST TAX PROFIT that he has not yet withdrawn from the company then it is taken to the DLA but is treated as though it has been paid to them.
In the example given where a director has a dividend already allocated to his DLA that is his money not the companies and he is effectively loaning the money to the company.
Current year expenses are against current year profits. Your director seems to wish to improve cashflow by reducing previously allocated dividends that have not yet been taken out of the DLA is effectively adjusting previous years accounts.
That can be done but remember that such accounts have already been filed and tax calculated upon them.
When asking this sort of question always imagine that the person that you are asking is a representative of HMRC. When you try putting yourself in their shoes it makes scenario's more black and white.
If the director is persistent then I suggest that they speak with an accountant about unwinding their history but I know now that the fee's are likely to set the director back more than the cashflow adjustment for the expenses.
All in all, my thoughts are that this is a situation to be avoided but also you need to ensure that the directors are only taking dividends from profits as to take dividends where there is no profit would actually be deemed as salary (so a further expense).
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The dividend has been earned out of profits for the last two years but has not been paid yet to the dividend. Therefore the dividend has been rightfully earned. But for 2011-12 the company has made no business, hence is under a loss. Therefore, my client was wondering whether he can adjust the dividend not claimed against some expenses for the year.
Do you think HMRC might probe if an adjustment of this nature is done in the books?
Thanks for your response and look forward to your reply.
However, the dividend must have been paid (and recorded as such) regardless as to whether the money was taken out of the business so the director will have already declared the dividends on their personal tax return (at least for the dividend two years ago).
The question has to be has the business filed it's accounts yet for 2010/11 in which case there is an arguement to suggest that the accounts for last year have not yet been finalised in which case they still have opportunity to rethink the dividend distribution... But I'm thinking that as one is asking questions about a scenario for 2011/12 accounts that scenario is already too late.
From HMRC's perspective one would be changing history on which tax matters have already been settled (I assume)... Do you really want to poke that hornets nest with a stick?
Is not the simplest approach to treat the dividend that remains in the DLA as a loan to the company until the companies fortunes improve?
kind regards,
Shaun.
p.s. I would really consider involving an accountant in this if the director is adamant about wanting to alter company history.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
