Autumn 2006 Newsletter Contents Into The Unknown Season Of Goodwill Farewell Andre Toon Done Doon Day Of Reckoning Artistic Licence Gizmos Again A Free Lunch Sweet As Nectar Security Concerns Going For A Spin The Cap Does Not Fit While It's Hot? Code Cracking Bad Connection Broken Trusts You Can't Take It With You Dividend Returns IR35 RIP? Spam Spam Spam Breaking Up Duty Calls Time Shift Moving Vans

Dividend Returns Most people know that the tax on dividends paid out of a small company is lower than the tax on the same amount taken as salary. Many people choose to pay a combination of salary and dividends that maximises the drawings and minimises the overall tax for company and individual. The Revenue are aware of it and sometimes raise objections, so you have to make sure that everything is done right. One of the problems with dividends is that you can only pay them out of profits. That's not tax law, it's company law. If the company hasn't made any profits, it can still pay a salary (if it's got cash) but it can't legally pay a dividend. If a shareholder receives a dividend when he or she ought reasonably to have known that there weren't any profits, the company can require the money to be paid back again. That's most likely to be an issue if the company goes into liquidation. The liquidator, acting for the company, claims the money back. In a recent case, the Court of Appeal decided that "ought reasonably to have known" did not require the shareholders to understand the Companies Act rules on profits available for distribution - it was enough that the directors appeared to know that there weren't any profits but they called the payments dividends anyway. If the company is not going into liquidation, you might still have problems with the Revenue. If you pay a dividend during the year, the directors are supposed to have some evidence that it's legal. You ought to have some management accounts and the last annual accounts to show that you are not close to the wire on the level of reserves. If you are on the borderline, you'll need better management accounts. If the Revenue can show that the payment couldn't legally be a dividend, they can argue it should be taxed as something else - which will usually be worse. If you want to discuss the most efficient - and legal - way of taking money out of your business, we will be happy to advise you.