Divs and reserves

The ‘Closer look’ section of Readers’ Forum on 2 December 2010 notes HMRC’s Insolvency Manual at 44297.

I am particularly concerned regarding the first of the two points namely that an interim dividend should actually be paid with if appropriate the funds loaned to the company by the shareholder.

I act for about 100 private relatively small limited companies and I have explained to each the need to ensure that before a dividend is declared the directors satisfy themselves that there are appropriate reserves of profit after due allowance has been taken for the resulting corporation tax liability.

While one client takes monthly dividends the vast majority take quarterly or half-yearly dividends and all are aware of the adverse taxation consequences for both themselves and their company if a loan account becomes overdrawn.

I...