How to deal with illegal dividends

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The Taxman will usually insist an incorrectly paid (i.e. illegal) dividend is treated as salary. This could trigger significant tax and NI bills. Counter this by referring him to his own guidance which says it cannot be salary unless approved by the Company. It will instead count as a loan to the director. This may have its own tax consequences, but these can be managed better than a one off PAYE/NIC hit.

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