Query about HMRC wording regarding payment of dividends

[japancool]

Uhh... you don't deduct dividends from profit. Dividends are paid *from* profit. Also CT is payable on your total profit, not what is left after dividends are paid,

If you've made £39k profit so far this year and taken £20k, all good.
If you've made £19k profit so far this year and taken £20k, not so good.

 

[last of the summer wine]

I think you need to start at the beginning. Calculate your profit for the year, deduct CT. The amount left is available for distribution as dividend. Through the year you may have issued interim dividends (OK if they are less than interim profit minis CT). Deduct any interim dividends paid in the year and what is left is available for dividend payment.

That is exactly what the accounting software shows on the P & L - profit for the year, less CT, less interim dividends already paid (£20k), leaving distributable reserves of £19k.

What was causing me to question anything is the HMRC website which says: "a company cannot pay out more in dividends than its profit in a current or past year."

So I took that to mean that if we paid a dividend this month, (say £2k) it would be added to the £20k already paid (making £22k in dividends) and that would then be in excess of the £19k showing as available.

 

[Newchodge]

That is exactly what the accounting software shows on the P & L - profit for the year, less CT, less interim dividends already paid (£20k), leaving distributable reserves of £19k.

What was causing me to question anything is the HMRC website which says: "a company cannot pay out more in dividends than its profit in a current or past year."

So I took that to mean that if we paid a dividend this month, (say £2k) it would be added to the £20k already paid (making £22k in dividends) and that would then be in excess of the £19k showing as available.

You have 39K available, of which 20K has already been distributed. You seem to want to count the 20K already paid twice.

 

[japancool]

Distributable reserve and profit are two different things.

 

[Kron]

I read the figures mentioned in this thread as:
£39k profit
-CT (19%) @ £7,410
£31,590 retained
£20k dividend already paid
£11,590 available for further dividends

Or am I missing something.

 

[DWS]

I read the figures mentioned in this thread as:
£39k profit
-CT (19%) @ £7,410
£31,590 retained
£20k dividend already paid
£11,590 available for further dividends

Or am I missing something.

Your missing that the OP said that he had £19k after C/Tax and £20k of dividends

 

[last of the summer wine]

You have 39K available, of which 20K has already been distributed. You seem to want to count the 20K already paid twice.

Yes thank you, you and @japancool seem to have hit the nail on the head! That's exactly what I was doing.

Reading HMRC's "a company cannot pay out more in dividends than its profit in a current or past year." , I was looking at the distributable balance and reading that to be the profit when, of course, that figure was exactly as the name says - 'distributable'. Heaven only knows why my brain stopped looking at it logically or properly. I can only think it was because the two sums were so close in value and bogus alarm bells started ringing - either that or a senior moment!

My thanks again to everyone who took the time and trouble to help me.