Dividends paid from third party limited company?

nopak

I and my colleague worked on small project and  client invoice paid to  my colleague limited company.  due to very less margin, he is advising will pay through dividends from his limited company to my limited company directors.   On paid invoice he will deduct 20% corporation tax and  rest of amount declare as dividend  and it will paid to my limited company. In my limited company we got 2 director i.e 60:40 so he will issue 2 dividends with 60:40 ratio .     He saying as he paid already cooperation tax in his company, no need to pay cooperation tax in my company,  just have to pay personal income tax on dividend received in self assessment.    Any harm in this route ? please advise

Dead_keen

It's probably worth you explaining the facts a bit more.  For example:

1. You say that the dividends will be paid to "my limited company directors".  Do the directors have shares in the client company?  I'll assume so. But you then imply that your company owns the shares and will get the dividends (by suggesting that your company won't pay tax as the client company has already paid corporation tax).

2. How did they get them? (i.e. a bit of narrative around the facts, what are the rights of the shares, how much did they pay for them, how did they pay for them, when did they get them, how did they fund the purchase price, what were they worth, what is going to happen to the shares after the dividend is paid, what will the shares be worth after the dividend is paid, etc).

3. Is your company VAT registered?

Jeremy535897

You need to explain precisely what happened. What companies are you talking about? Who owns the company paying the dividend and why would there be a payment of a dividend from a limited company to another limited company (yours) unless that limited company owned the company paying the dividend?

everfor007

i don't own any shares in my colleague company.   when i heard this option quite weird to me, that's what i am checking in this forum..   He said like, my company act has sister concern  to his company and that enables to issue the dividend to my limited company.  

Grumpy_chap

nopak said:

I and my colleague worked on small project and  client invoice paid to  my colleague limited company.  due to very less margin, he is advising will pay through dividends from his limited company to my limited company directors.   On paid invoice he will deduct 20% corporation tax and  rest of amount declare as dividend  and it will paid to my limited company. In my limited company we got 2 director i.e 60:40 so he will issue 2 dividends with 60:40 ratio .     He saying as he paid already cooperation tax in his company, no need to pay cooperation tax in my company,  just have to pay personal income tax on dividend received in self assessment.    Any harm in this route ? please advise

It sounds like this other person is either confused, or trying to create enough confusion that you are giving him a 20% discount.
Dividends can only be paid to shareholders (which may be individuals or may be another company).

everfor007 said:

i don't own any shares in my colleague company.   when i heard this option quite weird to me, that's what i am checking in this forum..   He said like, my company act has sister concern  to his company and that enables to issue the dividend to my limited company.  

Are you the OP?

Dead_keen

Ok.  So if it is just a payment that is purported to be a dividend then your company has to operate PAYE/NIC on itas tax law will treat it as employment income.  That seems to be quite ineffective for you bearing in mind it also involves giving a 20% discount.