Paying myself a dividend

Robboseven

I hope somebody can help on this.

I started my own small Ltd Co a year ago today, just me and my wife as Directors. So far things have gone well. l and I feel I am now in a position to pay myself a dividend of around £2,000 from 'rainy day funds' which I put aside in a company savings account each month.

My question is: How do I account for this on my books? (I do my own) and what tax is due? I've searched the Inland Revenue site without success so I'm a bit stuck!

Any help or pointers to advice websites would be greatly appreciated.

Lawbag_2

being a ltd company should mean you have an accountant to sign off the accounts.

the double entry is (correct me if Im wrong) is

Debit PNL account, Credit Dividends account (both BS entries)

and when you pay either full or partial amounts from the Dividend account from your bank account its Debit Divi, Credit Bank.

Hope that helps

Debt_Free_Chick

Lawbag wrote:

being a ltd company should mean you have an accountant to sign off the accounts.

the double entry is (correct me if Im wrong) is

Debit PNL account, Credit Dividends account (both BS entries)

and when you pay either full or partial amounts from the Dividend account from your bank account its Debit Divi, Credit Bank.

Hope that helps

Isn't there a tax deduction?

sneekymum

Some care needed,

See the Arctic Systems case...

definately use an accountant.

Robboseven

I intend to sign off my own accounts this year, I've contacted a few accountants who want to charge me too much for a very simple job (I only raise 8-10 invoices a month and have no complicated purchases etc as I am a consultant. Companies House are happy with self submissions for very small companies. To be honest I begrudge paying out £500 - £700 for what is (apart maybe from this payment) an easy job.

Cook_County

I agree with sneakymum 100%. This is not a case where you could file your own tax returns without disclosing that you do not agree with the Arctic systems desision. DIY is fine but the risk here from breaches of company law and tax evasion (as HMRC would see your case) would be too great.

Accountancy Age is carrying a story this week on the front page that accountants have on the whole failed to to register with the Information Commissioner. Have you registered?

These are the kind of tips you could and should get from a competent accountant.

sneekymum

Actually I don't use an accountant - but then I'm not a limited company - and I do (pretend to) know what I'm doing...

WHA

Are you certain that the company has enough distributable reserves to pay the dividend, otherwise it is against company law. You would need to prepare draft accounts and provide for taxation, depreciation, etc to show that the reserves were available. Then you need the directors meeting to approve the dividend. Then don't forget the dividend voucher. Finally, don't forget the corporation tax that the company will have to pay because of paying the dividend - paying a dividend if your profits are under £50,000 will increase the corporation tax. Good luck.

Lawbag_2

preparing your accounts to present to a chartered accountant to sign off is a much cheaper way of doing things.

if you have profits and "announce" a dividend, then yes there will be tax liabilities, which derive from the profits of the company (PBT) and are credited to a tax liability account.

of course, you will have to declare the dividend payout on your own personal tax return at a later date.

nookie

Double entry is..

Dr Dividends P&L
Cr Dividends Liability B/S

on payment

Dr Dividends Liability B/S
Cr Cash

Then at the year end when you come to calculate the company's tax liabilty you put through the usual tax provision. NCD (non corporate distributions) will apply if profits are being taxed at less than 19%

Hence, it may be possible that salary deductions are more tax efficient depending on your tax rate. Also consider the timing as the dividends you receive will be taxed based on the april fiscal year.

Ensure dividend vouchers are printed for your records and show the tax credit (100/90). The distribution must be approved by the board (yourselves) and are available to pay through retained profits.

Hope it helps