UK Overdrawn drawing account


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Hi there

So i have a new client who has overdrawn dividends, the company is limited, he has only taken dividends from the business no salary was set up, accounts are being done for a tax year ending 2018, he has profits within the business but dividends taken in excess of profits are around 16k, is there a way of putting through salary at the LEL (5k) through the accounts even though he has never submitted an RTI submission to reduce some of the 16k, or a form of director remuneration/management charge which wouldn't increase the business paying addtional taxes, he himself is happy to pay the relevent taxes when it comes to his self assessment.

Your help would be greatly appreciated
 
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bklynboy

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Not a tax guy but purely accounting you cant withdraw dividends in excess of retained earnings - that would imply part of it is a return of capital. So not sure if you mean dividends exceed CY NI or cumulative NI. Wish I could offer more but thought I would point this part out for consideration if it matters at all.
 
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Fidget

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True - and it matters a lot. It's actually illegal in the UK under the Companies Act to pay out dividends in excess of profits after tax. At best, HMRC would see it as salary and the company would then need to pay N.I on it. At worst, HMRC might see it as a form of tax evasion since it's unlawful in the first place, plus dividends aren't subject to any further tax for the company and are generally taxable on the recipient at more favourable rates than taxes on salaries. Given that the recipient is also the owner of the company paying himself these dividends, it's easy to see why it could be taken as tax evasion.
 
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