Taking a dividend at the close of a tax year, when funds not with-drawn until the next tax year

Sometimes it is useful to utilise a particular lower tax band that would otherwise go un-used, unless extra dividends are put through your LTD company.

The trouble is, your LTD company may not have the funds in the bank to pay the dividend before the close of the tax year, or you might have ear-marked the funds to be used for some other purpose.

In this scenario, all that is required is:

1. write up director’s meeting/decision minutes (ensure they are timely signed), to be taken before the end of the tax year, to decide on amount of “interim dividends”. Interim dividends are good, as they do not require shareholder approval. The draft profits of the company must be computed before the decision is made, to ensure there are sufficient reserves to allow the dividend.

2. “Pay” the dividend before the year end, by writing up a journal in the bookkeeping dated as per the date of the dividend to be declared payable in the minutes (before the end of the tax year), crediting the shareholder/director loan accounts with the relevant amounts and debiting the dividends account. The narrative should say something like “Dividends” and not, director’s loan or salary for clarity.

HMRC accept that where the above process is followed, the dividends are treated as being paid as per the date inserted into the bookkeeping, rather than a later date when the amounts might later be paid out of the company bank account.

if any businesses in Guildford need help with this, we can do this for you as your accountants if appointed.