Declaring Dividends over 2 years - self assessment

dinamight

My partner and I were working as consultants through his limited company in 2007. We were both 50% shareholders and he was the director. He closed the company down in 2007.

While the company was running we were both paid small salaries supplemented by dividends.

When he closed the company down he was told to close the company bank account so he paid out the remaining funds in the company account in 2 seperate payments to each of us in December (i.e. we both got 2 payments)

If I declare both payments as part of my dividends in the 2007 tax year a portion of the dividends will be in the 32.5% tax bracket.

Can I therefore declare the first December payout as part of my 2007 dividends, and defer the second payout to the 2008 tax year when I will not be earning any dividends (thus lowering my tax liability).

TIA.

Pennywise

dinamight wrote: »

Can I therefore declare the first December payout as part of my 2007 dividends, and defer the second payout to the 2008 tax year when I will not be earning any dividends (thus lowering my tax liability).

No, the dividends were paid in the 07 tax year so must be declared on the 07 tax return.

Too late now, but he didn't seem to get very good advice. He could either have delayed closing the account and paid two dividends, one in 07 and one in 08, or he could have applied for the final payout to be regarded as capital and subject to capital gains tax (less your ~£9k annual CGT allowances) and upto 75% reduction for CGT business asset taper relief.

Was the advice given by a qualified accountant - if so, I think he should consider a claim against them for what, at first sight, appears to be very poor advice (unless there are other factors you havn't told us about). If the advice was given by a friend or the usual rubbish "pub talk" then he needs to put it down to experience and should remember to get proper advice next time.

By the way, if he has made this mistake, did he do the company accounts and company tax returns properly? I must say it is very strange for him to be told to just close the bank account and pay the balance out as dividends - did he submit tax returns and pay the corporation tax? Did he file the statutory accounts at Companies House? If he didn't close it down properly, HMRC may well come knocking at your door for back tax, penalties, etc - just because the company has closed down, doesn't mean that your liabilities as directors disappear - if the directors havn't done things properly, they can become personally liable!

dinamight

Dear Pennywise,

Thank you for the helpful information. I know he was worried the bank account would be blocked once he closed the company, so paid the funds out to ensure they were not exposed. I agree we did not get the best advice.
But as far as I know he did close the company properly and paid corporation taxes due.

With regards to your comment on CGT is there any way to have the final payout deemed as Capital at this stage?

We just want to make sure we have covered all possibilities.

Thank you again.