Part one - paying dividends
If you are a shareholder in a limited company, your accountant may advise you to draw some of the company profits by way of a dividend.
You cannot simply draw cash from the company and call it a dividend. If the proper legal process is not followed, you may find yourself having to pay the dividend back to the company and finding yourself liable to an unexpected tax bill.
The first step is to make sure that the company has enough profit before a dividend is declared. At the very least, you should review your accounts to support the proposed dividend. If you use cloud accounting software which is kept up to date, then this should be a simple thing to do.
If you pay yourself a dividend without having enough profit in the company, you end up with an overdrawn director’s loan account and this is fraught with financial pitfalls.
The law states that each dividend should be evidenced by a minute of a board meeting and a dividend voucher prepared. This applies even if you are a sole director. Cloud accounting software can trigger the automatic preparation of minutes and dividend vouchers.
It is important that your accountant knows what is going on in your business during the year, and cloud accounting allows for this. Don’t wait until after the year-end, it is all too often too late to reverse illegal dividends.
See our further upcoming articles for further ways in which cloud accounting can ensure that you stay within the law.
Part two – VAT Compliance
Let’s think about this. If your accountant has constant access to your bookkeeping system, then how could this help you stay compliant with the VAT man?
I suppose we need to first look at what could go wrong. Grim, I know.
1. You should assess your VATable turnover every month and look back upon the previous 12 months to see whether you have exceeded the compulsory VAT threshold. A couple of things here:
· What is included in VATable turnover?
· What is the current threshold?
You could miss this fundamental and important requirement and end up with a penalty.
2. You may be VAT registered already, and not be sure what is allowable and disallowable VAT. For instance:
· Are you aware of the restrictions on the VAT charges on car lease payments?
· Are you aware of whether you can claim VAT on food?
Maybe you mistakenly claim VAT on such items or, even worse, maybe you mistakenly don’t.
3. Are you on the flat rate scheme? If so:
· Do you know at what point you become ineligible and need to leave the scheme?
· Have you been told about the massive changes to the flat rate scheme announced in 2016?
· Do you know whether you may be better off leaving the scheme?
Your accountant should be helping you in all the above, and not just at the end of the year when it could be too late.
When you switch to the cloud and invite your accountant into your world, you should feel comforted that someone is watching out for you, and should not be charging you for this basic service.
Disclaimer – this information is correct at the time of publication and is provided as general information not to be relied upon without a discussion with a suitably qualified professional.