Illegal Dividend

[Dibs_h]

I'm looking through a previous set of full accounts (y\e 30 April), which were filed with CH (abbreviated version) & HMRC (Full version).

For the year in question the P&L statement shows a loss for the year - but the bit that surprises me is that in the Notes to The Financial Statements - there is an entry for Dividends payable - (dividend declared, I assume as opposed to paid), as well on the Balance Sheet - under Creditors: Amounts due within 1 year.

IIRC - a company can't declare\pay dividends if it doesn't have the means to do so. The only saving grace (if you could call it that) is that it wasn't paid, so could still be made void, but I've come across articles that suggest as long as the company is not in administration or about to be, it might not be a good idea to void a dividend.

Any advice on what to do with it? I'm inclined to leave it as a liability on the balance sheet (Long Term Liability) for the moment until,

1. I'm able to get the previous accounts, paperwork & work out what the hell took place, and
2. Let future income "offset" it (It's not the right term, but hopefully.....)

I just hope 2 isn't in the category of cooking the books.

The only issue is the "next" accounts are due for filing at the end of this month for the AP which has just finished, I don't have the time\resources to go thru everything with a fine tooth comb, in the next 1.5 weeks.

Cheers.

[Simon-M]

The company could have have had profit when the dividend was declared.

[Dibs_h]

The company could have have had profit when the dividend was declared.

You mean like 6 months into the AP, everything looking rosy and a dividend declared, only for things to take a sharp nose dive in the later 6 months?

Only problem is that for the AP in question the only Turnover is negative - equal in value to an entry in the previous period under "Prepayment & Accrued Income) and the only other entry being Administrative Expenses -so I'm struggling to find any other conclusion - i.e. illegal dividend.

Question is how to deal with it going forward. I'm out of time to do amendments etc. from a HMRC point of view.

[Philip Hoyle]

Were there profits carried forward from an earlier period out of which the dividend was declared?

[elainec100@cheapaccounting]

Did you file the previous accounts?

[Dibs_h]

Did you file the previous accounts?

Oh yes!

Update: I've had a look (more like torn the house apart last night) for paperwork, and thankfully found the Trial Balance for the year in question.

Looking at it - the DLA is in credit, as confirmed by the accounts for the year before, as the amount in question is the same.

For the accounts in question (i.e. the ones with this dividend issue) this DLA amount has somehow become a Dividend - mind boggling. Why the firm who did the accounts previously couldn't have just left it alone as DLA - I have no idea.

So thankfully - there will be an adjustment in the accounts being done now, to revert it back to a DLA, as opposed to a Dividend Payable.

Even more odd is that DLA has historically been shown in the COA as a "Creditor: Amounts due within one year", just gets more and more weird.

As a friend pointed out - the accounts always seem to have Net Current Liabilities. He alluded to the fact that it could be interpreted as the company is insolvent & the directors were continuing to trade knowing they were insolvent.

Shocking really - but thankfully should be fixable.

[elainec100@cheapaccounting]

best check the dividends declared on the self assessment tie back to the accounts

[Dibs_h]

best check the dividends declared on the self assessment tie back to the accounts

Just checked the SA return for the Tax Year in question - nothing on it regarding the so called Dividend.

I'm going to correct the COA - moving DLA into Long Tern Creditors, that should solve the issue regarding Net Current Liabilities, Insolvency (or appearing as such), etc.

Followed by an adjustment reverting the Dividend back to the DLA (credit).

Looking back at the accounts for several years prior to this - I am so surprised there weren't queries on these from either HMRC or CH.

[taxattack]

Just checked the SA return for the Tax Year in question - nothing on it regarding the so called Dividend.

I'm going to correct the COA - moving DLA into Long Tern Creditors, that should solve the issue regarding Net Current Liabilities, Insolvency (or appearing as such), etc. What difference will that make? It will still be a liability.

Followed by an adjustment reverting the Dividend back to the DLA (credit).

Looking back at the accounts for several years prior to this - I am so surprised there weren't queries on these from either HMRC or CH.

Key test for solvency in real life is usually the ability to meet liabilities as they fall due, as opposed to the balance sheet test.

Chris

[Dibs_h]

Key test for solvency in real life is usually the ability to meet liabilities as they fall due, as opposed to the balance sheet test.

Chris

I appreciate the comment Chris. The company has always been solvent - but on the balance sheet, to allow things to remain as they are, would be to invite closer inspection, and that as we all know could be costly, not necessarily in terms of penalties, etc. - but in terms of the time\resources in dealing with it.

Also - it's also making sure things are in the right place.;)