Salary and dividend question for company (accounting period already ended)

katy123

Hi

Sister started her company in June last year. Accounts were made up to Mar 16 but being the first accounting period, there is a 9 months deadline for it to be filed with companies house (i.e. dec 16).

She mentioned that she did not take any salary of dividends within the first accounted period and her accountant suggested that it can be retrospectively applied? How is this even possible? For example, I thought dividends need to be declared via a dividend voucher but then again, I guess this can be back dated. Whereas salary works differently (i.e,. PAYE system).

paddyrg

Honestly, it's the accountant I'd listen to over a bunch of internet strangers

Pennywise

Payroll can be backdated, but there could be hefty fines for late return submissions.

Dividend paperwork can also be backdated, but there must have been the intention to pay the dividend at the time. The director's meeting minute is only a record of what was decided, so can be prepared and signed after the event. Usually fine if payments were made but a bit "iffy" if nothing ever drawn as you could end up in argument with HMRC whether the "meeting with herself" ever happened in reality.

I think she needs to look at the bigger picture and consider the long term costs (i.e. higher tax if any) of doing nothing as opposed to backdating and facing penalties/risks. Depending on her circumstances and figures, there may not be much in it.

So, yes, in theory, but there are risks, pros and cons. Far better to have done it right in the first place rather than trying to do tax planning after the event. I'd strongly suggest that she gets on top of it for the future and does the right things at the right times which is a lot less risky.

MataNui

Yes, your accountant is right. It can be retrospectively applied. Directors are treated differently for NI purposes. What the accountant will probably do is credit the directors loan account with an amount that maximizes the possible income vs tax due. This can then be taken out of the company tax free at any time.

Nothing is set until the accounts are drawn up which is what he is doing now.