Dividend Payments and PAYE

[spiceygal69]

One of my clients has been paying all directors/shareholders (one and the same in this company) under PAYE for their salaries. He has now decided to pay them the minimum under PAYE and rest via dividends.

However, despite having paid over the PAYE to the IR, he now wants to back-date the process and say that the Salaries should have been paid in this way all along. Thus, creating an overpayment to the Inland Revenue in PAYE payments.

Is this process legal, or will it create an enquiry from the Revenue. Being his book-keeper I am loathe to change all the Payroll records etc to incoorporate this change and have suggested that he changes it for the future payments only.

[Lambs]

S,

You are right to have misgivings. You should urge your client to take advice from his accountant or tax adviser, before making any such adjustments. It may be that a misunderstanding has arisen, and that (say) you have applied PAYE to what he intended to be a dividend. However, this would be difficult to argue for several such occurrences, or for a sustained period of time.

In the worst case, HM Revenue & Customs could see this as being tax evasion, which is a criminal offence. He should be in no doubt that making what might appear to be retrospective amendments, could have serious consequences.

Regards,

Lambs

[King_Maker]

I agree with Lambs.

You run the risk of jail for being involved in a criminal conspiracy to defraud HMRC. Not a wise move, IMHO.

Can he show you the relevant Board Minutes authorising these interim "dividends"?

[spiceygal69]

No board meetings have taken place. It is an idea he has to save tax and NI which is fine for the future. It is the backdating that made me very nervous.

I am going to advise him to leave the payments already made under PAYE as is.