Unlawful dividends.

[OldSmokey]

Are there any accountants out there who would be prepared to provide a statement (paid for of course) regarding unlawful shareholder dividends and how HMRC might handle the matter . It doesnt involve insolvency .

 

[Ziggy2024]

Are there any accountants out there who would be prepared to provide a statement (paid for of course) regarding unlawful shareholder dividends and how HMRC might handle the matter . It doesnt involve insolvency .

For what purpose? Who are they preparing the statement for?

If the dividends are unlawful then they would be repayable to the company so a loan. HMRC can't really argue anything else.

 

[UK Contractor Accountant]

HMRC can ask for S455 tax on the loan at 33.75% if not repaid within 9 months of company's year end date.

 

[Daybooks]

The director(s) of the company will be able to do this as they would have needed to follow the procedures required. These are (for interim): establish the distributable reserves; determine the total amount to be distributed; calculate the dividend per share; hold a board meeting and prepare minutes approving payment; then make payment to the shareholders and prepare dividend vouchers.

Establishing the distributable reserves normally require a set of contemporaneous ( management ) accounts proving that there are sufficient reserves after providing for taxes.

Thus it is really a matter of fact. Directors have a fiduciary and statutory duties under the Companies Act 2006, not to authorise unlawful dividends. S487 Companies Act 2006 gives the consequences. HMRC have to abide by the law too. To the extent that any payment is to be returned then there may be tax consequences until done so.

 

[Ziggy2024]

The director(s) of the company will be able to do this as they would have needed to follow the procedures required. These are (for interim): establish the distributable reserves; determine the total amount to be distributed; calculate the dividend per share; hold a board meeting and prepare minutes approving payment; then make payment to the shareholders and prepare dividend vouchers.

Establishing the distributable reserves normally require a set of contemporaneous ( management ) accounts proving that there are sufficient reserves after providing for taxes.

To be pedantic, if the correct procedures are followed then the dividend is not unlawful.

Thus it is really a matter of fact. Directors have a fiduciary and statutory duties under the Companies Act 2006, not to authorise unlawful dividends. S487 Companies Act 2006 gives the consequences. HMRC have to abide by the law too. To the extent that any payment is to be returned then there may be tax consequences until done so.

I checked the section you refer to and I think you mean S847 rather than S487?

 

[Daybooks]

To be pedantic, if the correct procedures are followed then the dividend is not unlawful.

I checked the section you refer to and I think you mean S847 rather than S487?

There would be a presumption that establishing the distributable reserves proved there were indeed sufficient reserves and this was done in accordance with Generally Accepted Accounting Policies; otherwise it could render them unlawful none the less. Thanks for correcting my typo to the Section reference.

 

[UK Contractor Accountant]

GAAP - General Accepted Accounting Principles!

 

[OldSmokey]

Thanks for the info so far guys. The company has profits to support the dividend .
Problem is they didnt pass a resolution for the dividend at board meetings , no consultation or vote of acceptance from shareholders, and no dividend voucher .
Shareholders were told in advance they would receive a dividend and the letter that came with the payment stated shareholder dividend .

As I understand it , HMRC could class the payment as a salary . If it was classed as a directors loan , it over the 9 month period for repayment .

For what its worth the company has now got a £70K tax bill due to them undervaluing
assets for several years .

One of our committee pointed out to directors that there could be problems over dividend payments. The responce was that those rules only applied to listed trading companys and anyway the payment was for services not a dividend !

 

[Lisa Thomas]

I rarely come across companies which have raised board minutes, passed resolutions, and dividend vouchers.

 

[UK Contractor Accountant]

Just because there is, at present, no accompanying signed Board Minutes & vouchers doesn't make it an illegal dividend.

If you back dated paperwork to fudge up a payment made from the company bank account to make it look like it was a dividend payment ....... that's a different kettle of fish!

 

[Paul Kelly ICHYB]

Did everyone agree to the dividend and they then got it?

 

[Bobbo]

For what its worth the company has now got a £70K tax bill due to them undervaluing
assets for several years .

What assets were "undervalued"?

anyway the payment was for services not a dividend !

So the payments you were concerned were unlawful dividends are in fact not dividends at all???

 

[MyAccountantOnline]

Are there any accountants out there who would be prepared to provide a statement (paid for of course) regarding unlawful shareholder dividends and how HMRC might handle the matter . It doesnt involve insolvency .

Who is the statement needed for?

I think you'll struggle to find any accountants who will do that as a one-off due to the amount of admin which has to be dealt with when taking on a new client.

 

[Ziggy2024]

Thanks for the info so far guys. The company has profits to support the dividend .
Problem is they didnt pass a resolution for the dividend at board meetings , no consultation or vote of acceptance from shareholders, and no dividend voucher .
Shareholders were told in advance they would receive a dividend and the letter that came with the payment stated shareholder dividend .

On the face of it then there is no unlawful dividend.

As I understand it , HMRC could class the payment as a salary . If it was classed as a directors loan , it over the 9 month period for repayment .

HMRC (nor the company) can't arbitrarily decide what a payment is. What you have said so far does not, in any way, suggest salary

For what its worth the company has now got a £70K tax bill due to them undervaluing
assets for several years .

OK, so surely you have an increase in your assets to offset this?

One of our committee pointed out to directors that there could be problems over dividend payments. The responce was that those rules only applied to listed trading companys and anyway the payment was for services not a dividend !

Seems like there is some confusion here so the first step is establishing facts. If the payments were called dividends then I would assume that's what they are until proven otherwise.

 

[Daybooks]

I rarely come across companies which have raised board minutes, passed resolutions, and dividend vouchers.

That is why they come to you.

 

[Lisa Thomas]

You might be right there...!