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Dividend Debate: Mr Oliver and Mr Elliot Chat

When Is It Not A Dividend?

Mr Oliver
Mr Elliot, I have a client who is concerned about his dividends.

 

Mr Elliot
What happened to his dividends?

 

Mr Oliver
Nothing *happened* to his dividends that is why he came to see me!!

 

Mr Elliot
I see Mr Oliver … and how can I help you.

 

Mr Oliver
Good Lord, you are meant to be a world authority on Dividends… you have done more blog postings on backdated dividends and frontdated dividends than I have had hot dinners.

 

Mr Elliot
Don’t let me stop you there Mr Oliver but did you read any of them?

 

Mr Oliver
Never mind answering questions with a question! The client posted a question on a Facebook Group about Landlord Tax advice and somebody said his dividend was not a dividend.

 

Mr Elliot
Well is it?

 

Mr Oliver
I have not got the foggiest idea which is why I am trying to ask you!

 

Mr Elliot
Well, what did he say to you and in his Facebook query?

 

 

 

Mr Oliver
He said that he transferred £30,000 in dividends from his Limited Company bank account to his personal bank account because he needed a new bright and shiny motor car for his commute.

 

Mr Elliot
How far is his commute?

 

Mr Oliver
Can you please stop with the squid ink questions Mr Elliot and get back to the client and his dividend!!

 

Mr Elliot
So far all you have told me is that he transferred the sum of £30,000 from his Limited Company bank account to his personal account.

 

Mr Oliver
That’s right.

 

Mr Elliot
Well, you know perfectly well if your information gathering has not turned up anything more than those facts, that is not a dividend or at least it is not likely to be sufficient evidence of one.

 

Mr Oliver
Why not? He paid money to himself and he did not put it through the payroll. He is entitled to pay himself something as a reward for his labour. Surely you know that slavery is not permissible under the Human Rights Act!

 

Mr Elliot
Dear Oh Dear Oh Dear, Mr Oliver. Did you forget all about Mr Saunders?

 

Mr Oliver
The one at Guinness?

 

Mr Elliot
Mr Oliver please refresh yourself on Guinness v Saunders, you are supposed to know this one backwards ie. that a Director is not entitled to a salary as of absolute right. Have you thought about it being a Director Loan?

 

Mr Oliver
No! You have still not told me why it is not a dividend.

 

Mr Elliot
Mr Oliver the mere transfer of funds between one bank account and another does not make the transaction a dividend. If I park my car in your driveway it does not become your car does it, something more is required. The same sort of idea arises with other transactions such as dividends.

 

Mr Oliver
What else is required? How else is a Director to pay themselves a dividend?

 

Mr Elliot
You have with respect Mr Oliver conflated the *payment* of a dividend with its declaration.

 

Mr Oliver
Why does someone need to *declare* a dividend, and where – on Twitter? to tell the world about their private limited company dividends?

 

Mr Elliot
Not on Twitter! Not everyone spends their life Tweeting. The records of the Company need to record a resolution evidencing that the Directors have declared a dividend.

 

Mr Oliver
I am sure that the 45th President would Tweet all about his dividends.

 

Mr Elliot
Not anymore…

 

Mr Oliver
Ok, so he declares the dividends now and can put them into the last accounts that are just being prepared. Right?

 

Mr Elliot
No No No Mr Oliver !!

 

Mr Oliver
Why not?

 

Mr Elliot
The reason is because the year-end has passed and he cannot alter a transaction after the event.

 

Mr Oliver
Oh yes I see what you mean.

 

Mr Elliot
And do not forget about looking out to ensure there are sufficient distributable reserves by reference to some ‘relevant accounts’ or else if a Liquidator was to sprout later on, it could be all called back as an unlawful dividend if the client does not dot the i’s and cross those t’s.

 

Mr Oliver
Mr Elliot, I am very grateful.

 

Mr Elliot
The next pint of Guinness when we come out of Lockdown is on you, Mr Oliver.

 

 

 

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Disclaimer Notice: All the characters here, Mr Oliver and Mr Elliot are all entirely fictional. They are not real and neither are their stories. If any of these characters appear in any Blog postings on this site that is purely a means of exploring ideas and stimulating debate, even if perhaps put over in arguably a slightly controversial way. Hopefully, it will be a bit of fun, whilst considering some serious issues in a lively, helpful and engaging manner.

Elliot Green

Licensed Insolvency Practitioner & Chartered Accountant. We Know Insolvency Inside Out.