Dividend Repayment?

Question

I would appreciate some advice on a situation that has recently arisen regarding the declaration of a previous diavidend payment now deemed as illegal according to my accountant. I currently work as an IT Contractor using a limited company structure for tax reasons and have just completed my first year of contracting, so i am still learning the ropes. On completion of the last contract, i had declared a dividend for a sum advised by my accountant and all was well. I have since undertaken some training so that i can become more competative as work is still hard to come by and since paying for the training the company is now making a loss. As such the dividend is now delared illegal. My question is, would the dividend still be illegal if it was the training that caused the company into a loss and not the dividend?

Any advice would be appreciated.

TIA Mark

Martin · Accepted Answer

Providing there really were distributable profits when the dividend was declared and paid, then it is not illegal. A loss produced subsequently - even in the same accounting year - does not render previous in-year dividends illegal.

AFAICS, the only issue to clarify is whether the up-coming expenditure on training was contractually binding - or even known about - when the dividend was declared. If that's an issue, then it would be sensible to add an appropriate explanatory note to the accounts.

Of course, in extremis you could capitalise the training and forego CT relief... :-)

HTH

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