Liquidating with ODLA caused by BBL

[Daybooks]

You are missing the point I fear.

Yes HMRC will want to treat it as a salary because the tax revenue will probably be higher. The possible liquidator will want to treat it as unlawful dividend because the potential benefit to the creditors is probably greater.

The liquidator will have a great case because there is evidence that previous withdrawals were taken and accounted for as dividends and despite knowing that a PAYE Scheme was needed to account for PAYE none was set up – further evidencing the withdrawals were not intended to be, nor were salary.

Importantly if you choose not to account for things properly at the time then do not expect to be able to treat them at a later date in the most beneficial way; your creditors will challenge you.

The Companies Act 2006 s386 (2) requires directors to keep adequate accounting records to be able to disclose with reasonable accuracy, at any time, the financial position of the company at any time. There is a good reason for it, no excuse and nothing more to say.

 

[NicoJ]

This. I used to pay myself a monthly amount and my accountant said that if HMRC saw it they would say it was salary, not dividend, and make us pay PAYE on it. Fortunately it never happened. If you are paying yourself monthly then it's a salary because you do not know if there is any profit avaialbe to take as a dividend becuase you haven't finished the financial year.

Your accountant was wrong. HMRC can't say that a payment is salary just because it is in their interests for it to be salary. They would have to prove that the nature of the payment was salary. If you could prove that the payment wasn't salary then they could not assess PAYE or NIC on the amount.

This is why it is so important to record the intention of the withdrawals in the company.

The OP took dividends. This is established from their very first post, there is only one poster who has taken it upon themselves to interpret this as taking salary.

I'm not sure when the dividend became salary according to this posters advice and how the OP could prove the timing if they did take this advice and restate the accounts. The poster advising this presumably hasn't thought about that.

 

[Newchodge]

This. I used to pay myself a monthly amount and my accountant said that if HMRC saw it they would say it was salary, not dividend, and make us pay PAYE on it. Fortunately it never happened. If you are paying yourself monthly then it's a salary because you do not know if there is any profit avaialbe to take as a dividend becuase you haven't finished the financial year.

No. It is not.

 

[Elliot Green]

This. I used to pay myself a monthly amount and my accountant said that if HMRC saw it they would say it was salary, not dividend, and make us pay PAYE on it. Fortunately it never happened. If you are paying yourself monthly then it's a salary because you do not know if there is any profit avaialbe to take as a dividend becuase you haven't finished the financial year.

If that was the case then an Overdrawn Directors Loan Account wouldn't arise as all monthly payments to Directors would be treated as salary and except if the Directors Loan Account was in credit would all be considered salary. However many Directors have overdrawn loan accounts.