View Full Version : Accounting in the accounts for dividend payments
Lucie Field
25th May 2010, 09:06
A company I do work for is looking at paying the directors divdends instead of salary. I understand the calculation and the tax credit calculation, but what I do not understand is where the postings should be in the book keeping. In particular, what happens to the tax credit part as I understand that this does not have to be paid by the company to HMRC, but there is the 10% difference to what has gone from the bak and what has been taken from the profits (that is assuming that the 100% is taken from the profit in the book keeping!). Many thanks in advance.
MyAccountantOnline
25th May 2010, 09:10
A company I do work for is looking at paying the directors divdends instead of salary. I understand the calculation and the tax credit calculation, but what I do not understand is where the postings should be in the book keeping. In particular, what happens to the tax credit part as I understand that this does not have to be paid by the company to HMRC, but there is the 10% difference to what has gone from the bak and what has been taken from the profits (that is assuming that the 100% is taken from the profit in the book keeping!). Many thanks in advance.
Hi Lucie
You just record the dividend paid in the records. No need to worry about the tax credit at all.
The only place that the tax credit shows is on the dividend voucher.
Nicola
Firstly (and before Jenni does) I will point out that dividends are not paid to directors but to shareholders. It will likely be that they are both but not alaways so point this out to them first.
Secondly, you do not have to do anything with the tax credit. It is notional.
elainec100@cheapaccounting
25th May 2010, 09:15
and thirdly ...
a company you do work for - does this mean you are a bookkeeper or accountant?
elainec100@cheapaccounting
25th May 2010, 09:16
but there is the 10% difference to what has gone from the bak and what has been taken from the profits (that is assuming that the 100% is taken from the profit in the book keeping!). Many thanks in advance.
there shouldn't be! your assumption is incorrect.
KDMINX
25th May 2010, 18:31
A company I do work for
You seem woefully under qualified. You should strongly advise “the company you do work for” to hire an qualified accountant or book keeper!
Jenni384
26th May 2010, 09:06
You seem woefully under qualified. You should strongly advise “the company you do work for” to hire an qualified accountant or book keeper!
A good bookkeeper doesn't necessarily undertand the mechanics of dividends. The tax credit can be confusing until the concept has sunk in. It could simply be this is the case.
KDMINX
26th May 2010, 11:26
A good bookkeeper doesn't necessarily undertand the mechanics of dividends. The tax credit can be confusing until the concept has sunk in. It could simply be this is the case.
That's all well and good but how much Ltd company book-keeping experience would you expect a book-keeper to have before they came across a dividend?
Does the client understand the limitations of her skills? Or are they relying on her as their main source of financial advice?
elainec100@cheapaccounting
26th May 2010, 11:55
A good bookkeeper doesn't necessarily undertand the mechanics of dividends.
really?
But surely if one of offering services to a limited company you should have sufficient knowledge etc
I thought that was what the rules of the various professional bodies prescribe.
Yes we all need to learn but the div stuff is pretty basic really
Jenni384
26th May 2010, 14:32
I'm playing devils advocate to an extent. If you have to post something you need to know how to do it properly (which, to be fair, was what the OP was asking). I would suggest the OP doesn't understand the tax credit properly, as her post suggests, but I'm sure she will now!
I did lots and lots of bookkeeping for Ltd Co's many years ago and never once had to post a dividend (ah, the accountants who make an accounting entry for dividends once a year and don't provide year end journals to the bookkeepers! We all know they exist! :eek:). Had I been asked to at that point, I'd have asked the accountant how - didn't know myself. I know some other bookkeepers who likely wouldn't know how to do it. Doesn't stop them being a good bookkeeper. What would stop them being a good bookkeeper on this count would be just making it up without asking for how to do it. The OP asked for help (and hopefully now knows the answer).
Therefore I think "woefully underqualified" is a bit of a sweeping statement and unfair without knowing the facts (you could be right, you could be wrong, but we can't tell either from this post). We all hope that any accountancy service provider will let their clients know their limitations and only do work for which they are suitably qualified/experienced/capable.
Elaine, I agree, it all depends on how much the bookkeeper is expected to do and advise on and someone with a fundamental lack of understanding of any given topic shouldn't be giving advice on these.
I'd disagree that divs are pretty basic (in the sense that they are, but I don't know of any bookkeeping qualification that teaches how they work).
As an example, IAB level 3 (Accounting and Advanced Bookkeeping) doesn't cover them.
IAB Level 4 does - but this is an accounting qualification, not bookkeeping.
I could be very wrong, but I don't believe I covered them at AAT in the Financial Accounts module (I think it was covered in the optional Business Tax module) and again this was level 4 which is accounting not bookkeeping. Could be misremembering though - was a while ago! :p
elainec100@cheapaccounting
26th May 2010, 15:09
As an example, IAB level 3 (Accounting and Advanced Bookkeeping) doesn't cover them.
IAB Level 4 does - but this is an accounting qualification, not bookkeeping.
I could be very wrong, but I don't believe I covered them at AAT in the Financial Accounts module (I think it was covered in the optional Business Tax module) and again this was level 4 which is accounting not bookkeeping. Could be misremembering though - was a while ago! :p
Blimey I find that amazing. :rolleyes::rolleyes:
AAT must cover them in personal tax surely for div on SA?
But you see in my world (pink sky and all that) if I don't know something (not often the case obviously :rolleyes::):p) first thing I do is use my friend Mr Google.
A little bit of reading adds to my knowledge.
If I can't find the answer then I may ask someone in the know. :p
Jenni384
26th May 2010, 15:15
Blimey I find that amazing. :rolleyes::rolleyes:
AAT must cover them in personal tax surely for div on SA?
Yeah probably, I can't remember! :p Again that's an optional module though [for reference, optional modules are 2 of Personal tax, Business Tax, Cash management and Audit].
But you see in my world (pink sky and all that) if I don't know something (not often the case obviously :rolleyes::):p) first thing I do is use my friend Mr Google.
A little bit of reading adds to my knowledge.
If I can't find the answer then I may ask someone in the know. :p
This is very true. Some people (myself included) don't have great google skills. Which is why God created fora :D