Bad advice: Huge dividend payment

[lukeol]

Last year I had a quite a large amount of cash in the business bank account. At the time I wanted to buy a house and spoke to my accountant about it numerous times. His conclusion was the in order to finance the house the best option for me would be to simply take a out a large divdend out and just pay the income tax on it. The dividend was £130k!

So I did just that. Now Im coming to do my books for that year and realizing just how much tax I'm gonna have to pay. I also didn't realise that I will also have to make payments on account!

In order to pay these income tax bills I'll need to take more dividends so have got myself in a bit of a pickle.

I've already spoken to another accountant and he was quite literally appauled at the advice I was given. He suggested I could have took the money out more sensibly, mentioning an employee trust fund as one option, if I can recall...?

Obviously I have to take some responsibility but just how bad was the advice?

[robbob]

Hi luke

Generally if want to take the money you pay the tax at you appropriate rate which is probably 40% for you.

I cannot see that you accountant has given any sort of negligent advise in this respect unless he has mislead you as to the amounts due and dates of payments.

However a good accountant would have made clear what payments would be due when and what the implications were in full.

I have no experience of employee trust funds so cannot coment in this regard - but this is not something that would be covered by a normal accountant and if you want to go down non standard tax saving routes you need to seek out this advise yourself.

Note if you can restrict the income you take in the current year then the payments on account may able to be reduced. This may give you some options to plan ahead and minimise any unintended future bills. However seek specific advise ASAP.

[JSK TAXATION]

Luke,

The issue you raise is a very interesting one. The truth is that there a few ways that the funds could have been extracted at a lower rate than 25% which is the effective higher rate charge on the net dividend received.

However, your accountant if he is used only to providing compliance type services, is unlikley to know how do advise comprehensively in these situations.

If you would like someone to take a look to see if there is anything that can be done (on a no strings attached initial basis) let me know. Kind regards,

John S King
Chartered Tax Adviser
www.taxation-advice.com

[rsw]

Hi Luke,

I presume that your accountant has advised you on the large income tax payment due so I guess you would have accounted for that.

But if this dividend payment is really just a one off and you are concerned with the payment on account - have you considered electing for a reduced payment on account?