I have not come across this before.
The company pays periodically but not sure if it is on an actual time to pay. Were there multiple declarations made?
negative balance sheet but dividends still paid | AccountingWEB
Multiple, depending on timings and profits to date, some of them may be ok. If they force a liquidation, it's likely that they will pursue the director for recovery of the cash in order to settle the tax debts.
Yes technically the dividends were illegal. The director only has a duty to liquidate the company if he does not reasonably believe that the company will have sufficient cash to discharge its liabilities when the time comes.
Obviously you need to read the riot act and explain that if ever, heaven forbid, he loses control of the company he should expect to have to pay back the so called illegal dividends. And yes, this is not really in respect of this question, just a hypothetical scenario that lead off from it. If the reserves were sufficient for the declaration of the dividend that was paid then the balance sheet couldn't have shown an overall deficit at the time. It may have fallen into deficit since if there have been subsequent losses.
I don't know where this stems from and the reason behind it. Yes he or she should have read the Riot Act as you will be. I would like to think that they almost certainly did. Arguably the money is held on constructive trust and can be shown as such in the accounts, so that no s etc.
Take a look at the R Baker v HMRC case. I thought my CT point would be self-evident if you read the R Baker v HMRC case. I would need to charge a fee to advise further. You can contact me at: And while I'm happy to make funny or sarcastic comments for free, if you need me to explain them to you I'll need payment in full in advance.
If you still don't understand then I'm happy to provide further explanations, also at a price The case was about a purchase of own shares that went wrong, so I couldn't see the relevance to the OP's question here.
So your point is far from self-evident to me at least.
By the way, I don't need any advice and haven't asked for any. It's the OP who's asked the question. I have spoken to the client asking for further info and a written response from his previous accountant. At this stage I am not even comfortable requesting professional clearance from p acct and asking for explanations I didn't give any extra info as I don't have any myself. But what's the problem? You just need the opening TB don't you? Then you can crack on with the next accounts and trying to help the client to get his balance sheet back in kilter.
The problem is self evident. That is why I would need to charge a fee to advise on this.
We all charge fees for full advice, but this forum is for professionals to support one another. By continually pushing this point and mentioning needing to charge fees to say anything further you are not only ignoring the purpose of this forum, you are likely to be contravening the rules against self-promotion. I see no tax issues to sort out, complex or otherwise - unless, which we are not told, the shareholders have not declared and paid tax on their dividends.
The [Baker] constructive trust point likely arose from the fact that there cannot be a s charge as, after the buyback, the individual is no longer a director or member of the company - it is now a loan to unconnected third party. In addition, at the point in time where the 'buy-back' was made the directors had reasonable belief that the reserves of the company were sufficient. OPs issue is distinctly different in that the dividends were knowingly declared and paid when the balance sheet deficit was relatively obvious - meaning that if repayment was required it likely would give rise to beneficial loan issues and a s liability.
I do allow that it is possible the company is seasonal and makes high profits in the first 2 quarters suffcicent to pay the dividends mentioned from positive reserves, and then has a dire second two quarters plunging it back to deficit as long as sufficient reserves at the time the dividend is paid is what matterssuch as a christmas decoration guadagnare con il trading forex with a June year end!
It seem to me that you are jumping to conclusion without any facts OGA. Firstly clients pay dividends not their accountants. You are assuming I think that accountant knew dividends were about to be paid, in real time, and did not advise against it. That said, my money is still on it assaxin 8 low price binary options trading system the accountant post dating dividends to clear an overdrawn DLA - in my experience it is more likely to be that way!
I don't think you can re-write history. I strongly disagree that an accountant should "cancel" a dividend that has already been paid. That, to me, would be just as wrong as back dating the voting of a dividend to keep a DLA in credit. The question is whether it is rewriting history, which would be wrong, or correcting something that had be recorded incorrectly. Unless the directors' had reason to believe there were sufficient profits to pay a dividend, then they cannot have declared a legal dividend.
Based on the information presented here it seems unlikely they could have believed that. So does preparing all the paperwork for a dividend anyway mean that it still happened in which case it cannot be cancelled or that it was erroneous to record it as dividends in the first place a correction to the labelling of the book-keeping entries rather than a cancellation.
Technically I would say that it's impossible to rewrite history, without having special powers or a time machine!
History after all has been completed. You could rewrite an account of history or rewrite the current view to represent how you would have preferred history to have looked Personally I'd recession affects stock market enjoy a time machine so I could pop back and try paying dividends if negative retained earnings parts of my past again but I'd want to be able to then put it back so that I could come back to where I am now.
Which appears to be a situation where I'm sitting here procrastinating and prattling on about matters that interest me and no-one else! Why does client need a tax lawyer, especially at such massive cost?
What tax difficulties or issues is he facing? He calculate market capitalization rate stock of aberdeen received dividends and, presumably declared them on his tax return and paid the appropriate tax.
What could be simpler and more straightforward? Certainly he is at risk of having to repay his dividends if he should lose control of the company but what has that to do with tax? I would have thought that if that happened tax would be the exchange rate aed dirhams to pounds of his worries.
I am not comfortable taking such a balance sheet on knowing that the client has no way of repaying in the short term less than 12 months this 20K which will keep on showing on the balance sheet 'for ever'. I feel that taking him on would how to bet on stock market cause aggravation and having to spend even more time explaining s charges etc.
HMRC takes a different view to you dailyfx forex charts this John.
They do approach the issue on the basis of a s. Also pace Justin Bryant, HMRC takes same view as outlined by BananaMan that fact there may be a constructive trust established doesn't prevent the operation of s.
Anyone interested in this area should take a look at Prest v Petrodel as as a classic constructive trustee case which would have avoided an ATED charge if one was otherwise due. Vardy was a constructive trustee case involving a dividend. Why anybody would think that level of fee reasonable to advise on this amount of 'potentially outstanding' tax is beyond me. That is my way. The dividends on which the shareholders have paid tax are not dividends at all but loans from the company.
Here is a refund of the income tax you did not need to pay and here is a demand for the S tax that the company should have paid but didn't. And it makes perfect sense that it should never happen doesn't it?
Can a business pay dividends with a negative retained earnings? - gohabizaw.web.fc2.com Specialties
HMRC have more sense. There is nothing in it for them. EDIT Now seen HMRC's own words on this subject. An exception to this will be where the dividend is paid as part of some avoidance scheme ".
I couldn't have put it better myself. Proves my point in its entirety. HMRC themselves say that legality of dividends is none of their business. So, as I said, client here may have many issues but tax is not one of them. I personally have dealt with enquiries on this side of the fence where HMRC have taken up as s.
Yes but if HMRC ever take issue with this surely all one needs to do is to point them to their own guidance and explain that as it is their department's stated policy that the legality or otherwise of dividends is none of their business and they should go away. It is not a matter of agreeing to disagree. You are quite right about the theoretical position that would arise if HMRC ever took the point.
My point is that they won't. The company has not parted with title to the sum that it purported to distribute, which as a consequence remains part of its assets under a constructive trust see also Ridge Securities Ltd v CIR 44TC ".
AIAs on rolled over fixed plant and machinery. Private members club w'ting off loan to trading Co. Your thoughts in the matter would be greatly appreciated. How long has the HMRC debt been carried forward for? Hi Just a thought Not logical KH wrote:.
By Old Greying Accountant. If they are illegal dividends Personally liable Old Greying Accountant wrote:. Constructive trust Arguably the money is held on constructive trust and can be shown as such in the accounts, so that no s etc. Puzzled Justin Bryant wrote:. Constructive trust I thought my CT point would be self-evident if you read the R Baker v HMRC case. Wowzer Justin Bryant wrote:. I think we are all speculating on what happened in the past without having any knowledge whatsoever.
Have I missed something? Not sure what you mean? What explanations do you need? Comment on pot s. Problems and solutions The problem is self evident. We all charge fees Justin Bryant wrote:. You don't need to be Einstein Old Greying Accountant wrote:.
Can Dividends Be Paid in Excess of Retained Earnings? | The Finance Base
I asked that question in the very first comment - no response. I concede that may be why freelanceaccountant has this client though! What do you say accountant should do differently in second year? In first year I would Cancel or never happened The question is whether it is rewriting history, which would be wrong, or correcting something that had be recorded incorrectly. Rewriting history stepurhan wrote:. You pick up the salient point, it was unlikely they were ever "proper" dividends anyway.
I have a Tardis on my phone Does that count? Baffled Why does client need a tax lawyer, especially at such massive cost? Johngroganjga HMRC takes a different view to you on this John.
An exception to this will be where the dividend is paid as part of some avoidance scheme " I couldn't have put it better myself. Sorry John but we will have to agree to diasgree On two counts.
Did you not do that in the cases you dealt with on this side of the fence? HMRC agree with me See the following extract from the link below: Please login or register to join the discussion.
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