Dividend update

22nd May 2020

It is common practice for director/shareholders to be paid a modest salary through PAYE and pay the balance of their remuneration in dividends.  This of course is perfectly permissible if the company has profits available to distribute to shareholders and there is no breach of directors’ duty.  Unfortunately, the dramatic effect that the Coronavirus is having on trading and many companies’ abilities to continue as going concerns is likely to result in some dividends being unlawful.  In particular:

 

  • It is not enough that the last filed accounts show there are sufficient distributable reserves (which meets the requirement of section 830 of the Companies Act 2006).
  • At the time directors declare a dividend they must also have regard to trading since the year end and its effect on distributable reserves.
  • Directors must also consider if the company is still a going concern and ideally have financial forecasts to support that view.
  • The company must be solvent on both balance sheet and cash flow bases.

 

If the company’s profits are being significantly impacted during the current Covid-19 lockdown, directors need to be extremely wary of authorising any dividend payments.  If there is any doubt please contact us so we can advise on the best course of action. If dividends are not feasible you could increase salaries in due course albeit the additional salary cannot be recovered through the Job Retention scheme. Dividends should also not be paid out of government loans such as the Bounce Back Loan or Coronavirus Business Interruption Loan Scheme.

Other items in Blogs
Barbara Nicholas
25th May 2022 A Grim Reap?

We work hard to improve our lot and most of us hope that our loved ones will reap some benefit from our endeavours. But assuming that we don’t manage to spend all the fruits of our labours, the taxman is lurking. And he will take a sizeable chunk if we don’t plan sensibly.   The…

Jake Day
17th May 2022 We’re Hiring: Tax Careers at Whitings

With a vacancy now open for a Trainee Tax Technician in our Bury St Edmunds office, we’d like to give you a closer look at the highlights of choosing a career in tax – and also the highlights of choosing Whitings as your employer. Why choose tax? The common misconception with a career in tax…

Peter Brown
16th May 2022 e-Commerce: Are you finding keeping your business’s records a nightmare?

Understanding how to account for your business’s transactions with online selling platforms can be complicated. Ensuring that you are submitting the correct information to HMRC can be tricky as not all platforms have the same VAT treatment.   A2X could make your life easier by saving you time and headaches from the complex world of…

Louise Bassett
10th May 2022 Defra Announce 50% BPS advance

As farmers face being squeezed with price increases for inputs due to the situation in Ukraine and worldwide gas and energy prices, DEFRA have announced that the RPA will advance 50% of the value of BPS payments to farmers from the end of July 2022 with the balance to be paid from December as normal.…

Luke Bacon
10th May 2022 HMRC starts chasing up SEISS overpayments

HMRC has started to recover overpayments of Self-employment Income Support Scheme (SEISS) grants. From April, HMRC is writing to taxpayers whose entitlement to the fourth or the fifth SEISS grant has reduced by more than £100 to ask them to repay amounts that were overpaid. Entitlement to the fourth and fifth SEISS grants can be affected…

Charlie Whittle
5th May 2022 TRS – Information required and annual declarations

Intended as a companion to: TRS Who should register and when. The TRS will collect information about the trust and its trustees, settlors and other individuals or organisations exercising control. This will include: Name of the trust. Date the trust was created. Whether the trust is an express trust or not. Details of the trust…