Illegal Dividend

[okevin]

Hi,

I am looking at a company which paid a dividend through its 31 May 2006 accounts, however the reserves were insufficient at this time (not by much)

Is this OK because, as now (Feb 07) we can see that the company has made good retained profits since this date, and has more than enough now.

If not OK, what should be done?

many thanks

[Bob Jones]

Are you concerned purely from an HMRC perspective? In which case it was never a big deal and if the amount wasn't much it would not normally be questioned unless there was another reason to look at the accounts.
On the odd occasion that I did query an illegal dividend the answer was normally that an interim set of accounts had been prepared and, at that time, sufficient profit had been made to pay the dividend and that it was later in the year that there was a down turn in profit etc etc

Bob

[okevin]

Thanks Bob,

Much appreciated.

I was concerned both from a HMRC point of view and also Companies House viewpoint.

You seem to suggest that when you looked at this before you looked at it from the point of view that the the company had reserves when it paid it , but the downturn in the latter part of the period caused the reserves to be negative... However I am coming from the angle that the business did not have profits at any point during the year but when we came to finalise the accounts (eight months later) it is obvious that there is enough reserves now??

Do you have any thoughts on this scenario?

Best Regards
k

[Bob Jones]

I think that it would be unlikley that HMRC would be bothered unless there was something less that caught their eye ...I can't answer for Companies House.
You ask what should be done - well I think (I don't know) that the strict situation is that the payments were not dividends and you will have to treat them in some other way - ?salary? - ?withdrawal of capital? - which from what you are saying could make the account overdrawn - but if you can get in back in credit within the 9 months themn you can avoid S419 ...

Bob

[okevin]

Thanks for your input Bob.

kevin