Content
U-Turns Galore
Premises, Promises
Filing Bonus
RIP: 0% Rate
His and Hers
Party Spirit
State Of The Union
VAT's The Point?
Going Dutch
Away Win For Revenue
WIP-Round
The Best Land Plans
Tax Free Gizmos
Where Theres A Will
Do You Work Here?
Out Of The Shadows
Sacrifice Works
Home Sweet Office
Sauce For The Goose
Blissful Ignorance
PC Or Not PC?
Lost On Penalties
Worth The Paper
Carry The Can
|
Everyone knows that ignorance of the law is no defence, but just occasionally it is. Slightly fewer people appreciate that anyone owning and running a company has to keep their hands off the company's money - the company belongs to the shareholders, but the bank account belongs to the company, and the shareholders can only have it if they are officially and properly paying themselves a dividend, or salary, or some other authorised sum with a tax consequence. You can get into trouble with the taxman for being too free with the company's money, but you can also get into trouble if the company goes bust. A liquidator can claim back a dividend that was paid to the shareholders in excess of the reserves of the company that are legally available for distribution according to company law. Basically, if a dividend is bigger than the P&L balance in the accounts, it's unlawful. This means that you have to have some profits in order to pay dividends. If you are paying salary, you can just use cash (and the company will make a loss) - but salary is more expensive for tax purposes. A couple ran a company and were advised by their accountants that paying dividends was the most tax efficient way of taking out an income from the business. So that's what they paid, failing to realise that they were not supposed to because the company had no profits. When the business went bust, the liquidator claimed the money back from them in order to pay the company's creditors. The High Court ruled that a shareholder only has to pay a dividend back if he "knew or had reasonable grounds to believe" that it was unlawful. In this case, the shareholders did not know about the law, and honestly believed on the basis of the advice they had received that this was a proper course of action. So the liquidator couldn't have the money back. Unfortunately, as you have read this article, you now won't be able to use the same argument |
© Bayar Hughes & Co., 2010.