Summer 2009 Newsletter Content Pot and kettle No more stealth Pensions hit A place in the sun Ready or not... Nice motor Making allowances Good times, bad times Tax-free checkup Three square meals Funny question Dividend rules OK? Too good to be true? Pay my friend Early EIS Mind the halfpennies Just the ticket Flat rate changes Foreign Service This year, next year Partial exemption Penalties Compliance checks Under their eye Howzat? Know your rights Discipline Don't be mean Redundancy Two sorts of absence Warranties

Dividend rules OK? Small companies often pay their shareholder/directors a regular amount each month which represents a dividend out of profits rather than a salary. The advantage is that dividends aren't subject to PAYE and NIC. You settle up any higher rate tax under self-assessment at the end of the tax year. The problem is that you can only pay dividends if there are profits in the company to do so. You also need cash to pay a dividend, but in a downturn it's possible to run out of profits before you run out of cash - not least because the corporation tax the company owes is not payable until 9 months after the end of the period. So you could continue paying what you paid last year, then find out that it was too much. Sorting that out can be painful. The extra payment might be regarded as a loan, and you'll have to pay it back to the company - you may also pay income tax on the benefit of having a cheap loan. If you want to keep it, you'll have to recharacterise it as salary, and then the PAYE and NIC will all be wrong. It's much better to see the problem coming and try to avoid it. That requires some budgeting - not necessarily in detail, but at least to assess whether the profit and loss account can support the current level of dividends. If you want help deciding what profits you can take out of your company and how best you can do it, we will be happy to advise you.