Dividends to Pay Director's Loan

[FBC]

I need some advice please. I've recently parted ways with my accountant and in my interim accounts he's registered all of the money I've taken out of the business as a Director's loan instead of dividends. Even though the business has been in profit and has been able to legally pay me dividends after month 1. My first accounting year end is in September and I've a directors loan of £12k which I want to clear using dividends from the business (there's enough profit to cover this). Do I simply declare on my dividend paperwork that the dividend is to clear the Director's loan or do I need to pay it to myself and then repay it to clear the loan. I'm a limited company and with only myself as an employee. I pay myself minimum wage. Many thanks

 

[MyAccountantOnline]

You can declare a dividend which is 'paid' directly to your directors loan. It doesn't have to be physically paid to you and then transfered back to the company. Just make sure it's documented and you prepare a dividend voucher.

 

[FBC]

Thanks Nicola, really appreciate the advice. I'll make sure its recorded as that.

 

[Daybooks]

Your accounts are your responsibility not that of your accountant therefore the classification is ultimately for you to make.

In the absence of any accounts to prove you have distributable reserves and documentation of properly declared dividends then your accountant would have be correct to advise the treatment they did. Thus being in a position to legally pay the dividends does not in itself make them lawful.

The procedure for payment of an interim dividend is 1) establish the distributable reserves; 2) determine the total amount to be distributed; 3) calculate the dividend per share; 4) hold a board meeting and prepare minutes approving payment and 5) make payment to the shareholders and prepare dividend vouchers.

As @MyAccountantOnline indicates you can apply the dividend to clear any director’s loan without physical payment taking place. “Documented” is referring to the above procedures; stating that it is to clear the loan is unnecessary. Your journal will provide the evidence.

You may want to revisit the decision to take the payment as dividend as there may be better alternatives depending upon other personal circumstances. But that's an entirely different issue.

 

[FBC]

Your accounts are your responsibility not that of your accountant therefore the classification is ultimately for you to make.

In the absence of any accounts to prove you have distributable reserves and documentation of properly declared dividends then your accountant would have be correct to advise the treatment they did. Thus being in a position to legally pay the dividends does not in itself make them lawful.

The procedure for payment of an interim dividend is 1) establish the distributable reserves; 2) determine the total amount to be distributed; 3) calculate the dividend per share; 4) hold a board meeting and prepare minutes approving payment and 5) make payment to the shareholders and prepare dividend vouchers.

As @MyAccountantOnline indicates you can apply the dividend to clear any director’s loan without physical payment taking place. “Documented” is referring to the above procedures; stating that it is to clear the loan is unnecessary. Your journal will provide the evidence.

You may want to revisit the decision to take the payment as dividend as there may be better alternatives depending upon other personal circumstances. But that's an entirely different issue.

Thanks for your advice and guidance. Much appreciated.