Tax year balls-up

How does this effect your taxable income?

Earliest of entitlement to payment and payment. There's a few more complications for directors.

What do you mean by a loan note? What is the point?

What do you mean by dated?

What about NCDR?

Well, let's say I will receive £50,000 in the 2006-2007 year, and have £30,000 income for 2005-2006. If I make a £5,000 dividend payment from the company and it falls into 2005-2006, then there is no additional tax to pay, I make £35k in 2005/06, and £50k in 2006/07. If the £5,000 falls in tax year 06/07, then as I believe I will earn over the basic rate allowance, there will be higher rate tax to pay.

It appears to me that where you own a small company it is in your interest to make full us of your basic rate allowance every year to pay out the maximum dividend possible, given that ultimately it's probably more useful for the money to be in my bank account, or other investment, that sitting in the company's account.

Ok, so I can happily backdate the PAYE.

For the tax year 2005-2006 it says

file online for 2005-06 (return due by 19 May 2006) and get £250

An IOU from the company to myself for the dividend amount, dated within the 2005-2006 tax year.

The point would be if we were to now declare a dividend of say £6,000 per share (2 shares), and date it March 31st 2006, but not pay it until today, 12 April 2006, then the dividend would fall into tax year

If a loan note/IOU dated March 31st 2006 were acceptable as a form of payment of the dividend and not viewed badly by IR

The paperwork would all be dated March 31st 2006, but the money would not be paid until today (or later). The money would not start moving until 2006-2007 tax year.

My understanding is that where the profit exceeds £50k there is no difference in the underlying rate. My company's accounting period is January 1 - December 31 2006, and the profit will exceed £50k, so there is no marginal relief. I guess it would be better if the accounting period had ended around 31 March, so that £25k income for the period would attract marginal relief giving an underlying rate of

I'm just worried about personal tax liability here.

Barry wrote:-

What I would like to do (or to have done already) is to pay three months of salary totalling 1200 to my wife (equivalent to the Primary Threshold for NI), plus make a 6000 dividend payment each (tax paid by the corporation tax credit), which would release 13,200 from the company, with zero personal tax liability.

Simon wrote:-

What duties did she undertake for the company to deserve this and was it actually paid into HER bank account.

AIUI, you can declare the dividend in the 2006 tax year and leave it in your account in the company.

However, IANAA and you should probably seek professional advice.

Any accountants out there who could help me sort this out on an ad hoc basis?

Pop over to

What makes you think that you can legitimately back-date a dividend? The dividend is taxable on the earlier of the date that it was declared as payable or the date it was actually paid. Viz, if on 1 January you declared a dividend as payable "on 5 Jan" then it is taxable on 5 Jan. If on 1 Jan you simply declare a dividend as payable, it is taxable on

My advice is to consult an experienced accountant, otherwise you can fall into all kinds of traps.

SNIP

The dividend issues are nowhere near as difficult or complex as you, or some of the replies, are making out. You just need to know your way around the system.

More than willing to assist, for a fee of course.

Agreed

Ditto :-)

With respect, I think that's somewhat naive. It's rather like believeing that clients don't sign tax returns until they're completed !

I don't quarrel with that. But the OP needs to act quickly, before P35s & P14s are submitted.

If the company declared a dividend on 31st march and paid by cheque, which you didn't cash until last week, would that be OK?

rgds, Alan

I understand that concept but what is the effect of a "loan note"? Are you saying you will lend the company money to enable it to make a dividend payment to you?

Apologies, when I first saw that I assumed the £250 was for 2004-2005 when there was the first incentive of £250 so I thought the next year was only £150. Not like HMRC to update their website!

Why don't you just make a payment to the company from your private funds?

You should worry about after tax income.

I don't think he's being naive. He's saying it is fraud; which it is. I'm sure he knows it goes on.

I find that I do the vast majority of my clients tax returns online and most of my clients tax returns are sent by pdf for them to agree before filing online. This makes it relatively painless to get someone to take or post tax returns to about ten clients who don't have internet access or not set up for online filing.

No Martin, it is not the same at all. If you deliberately gain a tax advantage by making up documentation to pretend a dividend was declared on a certain date when in fact it was not, then that is fraud and HMRC could see it as a prosecutable offence. Believe me!

Thanks Peter. The naivety of some people here scares me!

Much as it grieves me to support Martin, you are being naive. If a dividend is declared and somebody forgets to finalise the documentation, then that is what happens the length and breadth of Britain.

The whole point about clients is that they don't understand paperwork. That is why they employ accountants, to make sure it is all brought up to date.

I work for a small Ltd Co. My boss goes to the till, takes out £50, leave a note to that effect, and visits Sainbury's to buy £4 of tea and milk and a £3.99 bunch of flowers for his wife.

Is that:

Quite apart from the "timing" differences which make that statement nonsensical, it could simply be reimbursement of mileage, or change taken out of the till for the Petty Cash tin.