Limited company directors warned over illegal dividends

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Limited company directors warned over illegal dividends

Posted Aug 2, 2010

A leading accountant says that the number of company directors taking illegal dividends or loans has risen at a rapid rate.

According to Keith Stevens, partner at Wilkins Kennedy, the vast majority of the insolvency cases he has taken on have led to investigations over directors taking out illegal dividends from their companies.

The accountancy firm believes that many directors may have been tempted to pay themselves particularly generous dividends before the new higher 50% income tax rate came into play on 6th April 2010.

You can only pay yourself a dividend if your limited company has enough accumulated profits at the time of the declaration.

Don't use your limited company as a personal piggybank

Wilkins Kennedy explains that the recession has led to a minority of directors and business owners taking illegal loans or dividends to pay for the lifestyles that they have become accustomed to but which the failing fortunes of their businesses can no longer fund.

Mr Stevens explained that limited company directors should be careful not to treat their businesses as personal piggybanks:

"A couple of holiday homes, a taste for sports cars and an expensive divorce settlement will normally come with a big debt that needs servicing every month. For some owner-managers it seems easier to break the rules and take an illegal loan from the company than to curb their spending."

"HMRC wants these directors banned and they want to pursue these directors through the courts for all the money that they can. That is an obligation that HMRC have, so directors need to beware of that."

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