Backdating Dividends

wiganer

I was wondering what the feeling is on these forums with regard to backdating dividends so that a payment is deemed to have been paid in the previous tax year rather than the current one.

For example, the company year end is 31 August and based on accounts to 31 August 2011 a dividend is raised once the accounts are completed, say, in December 2011. The dividend is raised so that it is paid in the period 1 Jan 2011 to 5 April 2011 and is therefore deemed to be paid in the previous tax year. Paperwork etc is completed retrospectively to make everything fit.

My friend who is an accountant seems to think this is fine and normal practice but it seems a bit off to me. What do you think?

chrismac1

It's a bit naughty but I have seen this sort of thing in several clients I've won off local Chartered Accountants. Personally I like to review all my limited company clients' in mid-March and then make legal dividends before the end of the tax year, suitable to each client's personal tax position, for that reason. Technically it is a breach of the Companies Act to do this retrospectively.

antrobus

Naughty? I'd have thought it was positively dangerous. In the circumstances outlined above, I'd have thought that no matter how cleverly the paperwork was adjusted to make things fit, the actual date of payment would remain unaltered, thus rendering the effort rather superfluous.

If HMRC were ever to find out ....

Definitely a 'bit off'.

Murdina

I think it might cross the line from bit off to fraud if paperwork is prepared today with dates some time ago purporting to be contemporaneous record of something that happened at that date.

In some cases, the company may have been making regular payments to the shareholder which were meant to be dividends but which were not actually formally documented at the time as such. If a payment was made on a given date and the intention was to pay it as a dividend it might just about be OK to do paperwork some time later referring back to the original payment. This may seem like a fine difference and perhaps it's too fine for some accountants to appreciate?

The company must of course have had sufficient distributable reserves at the time the payment was made.

I would really not tinker around too much with dividends in this way. It is not the accountant who will end up with the extra tax, NI, interest and penalties when HMRC query the issue. With the current changes in tax rates at the higher end of the scale, if the aim is to circumvent these you can expect HMRC to be very on the ball to spot such attempts using dividends.