Partner leaves biz. Declares massive dividend. Causes probs
Discussion
You can't treat the £90k as any form of expense, because it wasn't one.
You have no receipts and your partner has formalised it as a dividend. It wasn't PAYE because I am assuming you don't run that.
So if you are equal shareholders then you should also have taken a dividend of £90k .. But then there is the small matter of the ~£40k corp tax due ..
You have no receipts and your partner has formalised it as a dividend. It wasn't PAYE because I am assuming you don't run that.
So if you are equal shareholders then you should also have taken a dividend of £90k .. But then there is the small matter of the ~£40k corp tax due ..
Edited by essayer on Monday 25th February 07:31
Was the proper process gone through for formalising the payment of a dividend?
Was a directors meeting held.
Was it minuted.
Have dividend vouchers been processed.
You cannot have one party declaring a dividend for something that wasn't.
Alternatively, you cannot claim that a dividend is salary or some other form of business expense. It isn't.
What has been shown in the accounts?
Was a directors meeting held.
Was it minuted.
Have dividend vouchers been processed.
You cannot have one party declaring a dividend for something that wasn't.
Alternatively, you cannot claim that a dividend is salary or some other form of business expense. It isn't.
What has been shown in the accounts?
If you are on friendly terms then get your fellow director to repay the money, amend his tax return, pay the fine and then pay an accountant < 1% of your turnover to sort out the mess.
If you put it as PAYE then the company is liable for some fines because all the P60s etc have now been filed.
If you want to play hard then demand the money back, he has seemingly withdrawn the company's money without any mutual agreement. You might be able to account for it on the balance sheet somehow, some form of owed-money asset or left as directors loan (there are some CT implications here I think).
But as Eric says, legally, there are no dividends without a board meeting, majority vote and paperwork. And certainly not dividends that exceed the retained profit!
His self assessment position is none of your concern.
If you put it as PAYE then the company is liable for some fines because all the P60s etc have now been filed.
If you want to play hard then demand the money back, he has seemingly withdrawn the company's money without any mutual agreement. You might be able to account for it on the balance sheet somehow, some form of owed-money asset or left as directors loan (there are some CT implications here I think).
But as Eric says, legally, there are no dividends without a board meeting, majority vote and paperwork. And certainly not dividends that exceed the retained profit!
His self assessment position is none of your concern.
In my mind, this director has at worst stolen the money from the company and at the very least has borrowed the amount and owes it back.
If the latter, the company is in serious problems because it will now have a large overdrawn director's loan account situation and will be subject to Section 455 (formerly Section 419) penalty Corporation Tax (extra to any normal Corporation Tax). There will also be a requirement to disclose this loan under the Benefit in Kind rules and if it isn't disclosed as such through the P11D system, then the company could be in serious penalty difficulties with HMRC on that score too.
http://www.hmrc.gov.uk/ct/managing/director-loan.h...
Does this company have an accountant appointed?
If not, why not?
From what I can see, the whole operation is being run in a shambolic and chaotic manner and the directors could be accused of being negligent.
If the latter, the company is in serious problems because it will now have a large overdrawn director's loan account situation and will be subject to Section 455 (formerly Section 419) penalty Corporation Tax (extra to any normal Corporation Tax). There will also be a requirement to disclose this loan under the Benefit in Kind rules and if it isn't disclosed as such through the P11D system, then the company could be in serious penalty difficulties with HMRC on that score too.
http://www.hmrc.gov.uk/ct/managing/director-loan.h...
Does this company have an accountant appointed?
If not, why not?
From what I can see, the whole operation is being run in a shambolic and chaotic manner and the directors could be accused of being negligent.
You say the "dividend" wasn't formally voted on, therefore as per Eric, this money is not a dividend. Dividends are a matter of Company law not Tax law.
At best it's an overdrawn Directors loan Account but HMRC would probably claim it to be income meaning NI and Tax to be paid, the £90,000 being the income AFTER Tax and NI. There was a case some years ago very similar where retrospectively the person in your Ex Director's position claimed as opposed to dividend, it was in fact income and just not been properly recorded. I don't know what happened in the end
Despite your reluctance, you should really get Specialist advice.
At best it's an overdrawn Directors loan Account but HMRC would probably claim it to be income meaning NI and Tax to be paid, the £90,000 being the income AFTER Tax and NI. There was a case some years ago very similar where retrospectively the person in your Ex Director's position claimed as opposed to dividend, it was in fact income and just not been properly recorded. I don't know what happened in the end
Despite your reluctance, you should really get Specialist advice.
CT600lover said:
It was agreed that 100% of his billables would be paid to him including the 11000 salary.
Err, what about corporation tax?You need to start arse-covering ASAP because as soon as your CT600 goes in various sirens will go off at HMRC and they will be all over you.
What did you declare on your SA? And the third shareholder?
CT600lover said:
I fail to see how it's defrading the taxman to put the 90,000 through as PAYE and pay the relevant tax. The tax has already been paid except it was paid as SA on a dividend. Hardly fraud to not wish to pay twice!
I have other companies which generate my main income and they run faultlessly. This is the only one causing issues.
He left to make more money on his own and I also persue other interests. There's no animosity between us and all routes are open.
No it hasn't the tax paid was only the element of the claimed dividend subject to 40% income tax. HMRC will still be expecting the corporation tax on it from you. But you should know that running other companies too!I have other companies which generate my main income and they run faultlessly. This is the only one causing issues.
He left to make more money on his own and I also persue other interests. There's no animosity between us and all routes are open.
What he has declared to HMRC is not your concern. All you have to worry about is the Ltd.
I suggest you swallow your pride and see a decent accountant to help sort out the mess.
CT600lover said:
essayer said:
Err, what about corporation tax?
You need to start arse-covering ASAP because as soon as your CT600 goes in various sirens will go off at HMRC and they will be all over you.
What did you declare on your SA? And the third shareholder?
It was agreed that both our legit expenses would be taken into account and after that we'd split the CT 50/50. I would then get whatever %age of the 90k back after I'd paid it. This stopped when I saw his SA with 'dividend'. I'm the third shareholder. I have 2 - he has (had) 1. My SA has not yet been sent either while this gets sorted. You need to start arse-covering ASAP because as soon as your CT600 goes in various sirens will go off at HMRC and they will be all over you.
What did you declare on your SA? And the third shareholder?
I saw this as:
£200k T/O
Both our expenses c. £60k
CT on £140 of c. £28000 so partern to give me back 14,000 of the 90,000.
Rest split as dividends.
Based on how you describe things, you have not got a single clue what you are doing.
It is absolutely essential that you speak to a proper accountant straight away or else you will find yourself in serious trouble with HMRC.
Eric Mc said:
Do you know ANYTHING about Company Law, Company Accounts and Corporation Tax?
Based on how you describe things, you have not got a single clue what you are doing.
It is absolutely essential that you speak to a proper accountant straight away or else you will find yourself in serious trouble with HMRC.
+1 Christ, yes. I've been contracting for 20 years now and have had 2 limited companies in that time, with the same accountants throughout. So I'm not up on all the possiblities, but even I'm reading the OPs posts and cringeing at the shennanigans that he's coming up with.Based on how you describe things, you have not got a single clue what you are doing.
It is absolutely essential that you speak to a proper accountant straight away or else you will find yourself in serious trouble with HMRC.
Of course, the worst case scenario for the OP would be for the HMRC to have their alarms rang for this company, to then start investigating the OPs other companies. If he's runnnign them like this one, the HMRC could have a field day!
OP, seriously, don't dick around for the sake of a grand or so, get an accountant to sort this out before the HMRC stormtroopers arrive at your door. You do not want them poking into your other companies by the sounds of it!
Eric Mc said:
CT600lover said:
essayer said:
Err, what about corporation tax?
You need to start arse-covering ASAP because as soon as your CT600 goes in various sirens will go off at HMRC and they will be all over you.
What did you declare on your SA? And the third shareholder?
It was agreed that both our legit expenses would be taken into account and after that we'd split the CT 50/50. I would then get whatever %age of the 90k back after I'd paid it. This stopped when I saw his SA with 'dividend'. I'm the third shareholder. I have 2 - he has (had) 1. My SA has not yet been sent either while this gets sorted. You need to start arse-covering ASAP because as soon as your CT600 goes in various sirens will go off at HMRC and they will be all over you.
What did you declare on your SA? And the third shareholder?
I saw this as:
£200k T/O
Both our expenses c. £60k
CT on £140 of c. £28000 so partern to give me back 14,000 of the 90,000.
Rest split as dividends.
Based on how you describe things, you have not got a single clue what you are doing.
It is absolutely essential that you speak to a proper accountant straight away or else you will find yourself in serious trouble with HMRC.
It's obviously possible to take money out of the company and back date or produce a Dividend certificate at a later date, bad practise but it's not going to get you put in jail. What you can't do is take money out of a company account and then decide later what it was you took it out for... If he took it as dividend (he's a company director i guess as well as a shareholder) regardless of the fact he didn't do the paper work then it was a dividend, the only other option would be to leave the directors loan account £90K overdrawn and see where that gets you! Or declare the payments PAYE and pay all the extra tax.
The paperwork is EVIDENCE of the dividend. If a person draws money from the company and CALLS it a dividend payment - that does not make it a dividend at all.
If he took money without any sort of agreement of the other directors - it could very well be theft.
In all likelihood, the definition of the payment is a that of a "director's withdrawal" which will be looked as the making of a loan to that director.
And that can create a whole world of pain all of its own.
If he took money without any sort of agreement of the other directors - it could very well be theft.
In all likelihood, the definition of the payment is a that of a "director's withdrawal" which will be looked as the making of a loan to that director.
And that can create a whole world of pain all of its own.
CT600lover said:
Indeed. I did state earlier that it was agreed that he would get what he billed less VAT. He would then sort out his own tax on his SA. This is where it's fallen down.
A previous poster mentioned PAYE and I believe this will be the way to go. I will 'anonymously' see a specialist tomorrow with a view to saying to me former colleague (in similar words but less aggressively),
"You've had 90,000. I will put this on the P&L as a salary in addition to the 11,000 you've already had. You now owe xxx for the PAYE on this. REGARDLESS of the 15,000 you've decided to pay on your SA. As you know, you've possible committed fraud by signing your SA knowing that there were no dividends declared."
It will then be for him to sort out his 15,000 already paid with his accountant and the taxman. Only problem AFAICS is that I'm not prepared to pay his PAYE and NI on the 90k so I'm asking him for circa 25,000. I won't be paying this to HMRC however he was a director for 10 months of the period in q. so I guess HMRC can chase him for it...
I can see this turning out well for you.A previous poster mentioned PAYE and I believe this will be the way to go. I will 'anonymously' see a specialist tomorrow with a view to saying to me former colleague (in similar words but less aggressively),
"You've had 90,000. I will put this on the P&L as a salary in addition to the 11,000 you've already had. You now owe xxx for the PAYE on this. REGARDLESS of the 15,000 you've decided to pay on your SA. As you know, you've possible committed fraud by signing your SA knowing that there were no dividends declared."
It will then be for him to sort out his 15,000 already paid with his accountant and the taxman. Only problem AFAICS is that I'm not prepared to pay his PAYE and NI on the 90k so I'm asking him for circa 25,000. I won't be paying this to HMRC however he was a director for 10 months of the period in q. so I guess HMRC can chase him for it...
CT600lover said:
It will then be for him to sort out his 15,000 already paid with his accountant and the taxman. Only problem AFAICS is that I'm not prepared to pay his PAYE and NI on the 90k so I'm asking him for circa 25,000. I won't be paying this to HMRC however he was a director for 10 months of the period in q. so I guess HMRC can chase him for it...
If its a Ltd Co & you declare it as PAYE, won't the company be liable for the additional Tax & NI, rather than the individual?IIRC there are also penalties for the company failing to operate the paye scheme correctly.
CT600lover said:
mattnunn said:
Or declare the payments PAYE and pay all the extra tax.
Thank you - that's the sort of thing I was looking to see about when I wrote the post this morning.As I explained above, this would appear to be a legit way to get this squared away.
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