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bigduckontax, Accountant
Category: UK Tax
Satisfied Customers: 3814
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ATT. Big Duck on tax. no improvement on the previous reply

Customer Question

ATT. Big Duck on tax.
Hello - no improvement on the previous reply arriving so wondered if you could post your original reply to this question again. Thanks
The history is that we (my partner and I ) have 2 limited companies with another person that we have started a property business with which relies on commission being paid on fairly large transactions, which, while quite good, take quite a few months to progress and as a result none have been paid yet.
I have another sole trading business which has enough turnover to support a cash injection to the limited company ( all 3 of us are directors on this ltd co) to put the company account in credit.
Could this other director then take the injected funds as part wages in the £600 as paye and say dividends of £4000 every 2 months ?
Depending on what would be allowable under this arrangement he could either be a consultant or manager of my property company or take the dividends that we could balance out equally at a later date.
The ltd company will be self funding in approx 6-8 months time so my next question would be can I at that time or a bit later withdraw the cash injection or just take my dividend equal to the dividends he has already taken ? I believe that I can withdraw the cash injection free of tax implications or the dividends at 20% tax ? ( I would pay more tax than that on my sole trading )
Am I correct that directors are not required to take equal share dividends from a company and this has nothing to do with the shareholdings ?
Does this arrangement seem workable - or is there is a more obvious way that I am overlooking.
As this is a bit if a detailed question I can reply to you answer in a new question.
Thanks Sarah.
Submitted: 1 year ago.
Category: UK Tax
Expert:  bigduckontax replied 1 year ago.

Here is my original reply; did you not receive it?

Hello, Sarah, thank you for asking for my advice.

Cash could be paid into the company by a third party or even a director as a loan to the company. It can be repaid at some future indeterminate date. There are no tax implications involved unless interest is paid on such loans in which case that interest is allowed against the company's Corporation Tax (CT) position and must be taxed on the individual through the CT61 procedure [company pays interest net of income tax at the basic rate which is paid direct to HMRC].

Payment of salaries to directors must be done through PAYE as directors are employees per se.

Dividends may onky be paid from surplus funds so beware of the company making a fraudulent preference, a criminal offence, not paying one creditor in favour of another. Dividends should be paid in proportion to shareholdings although I suppose this could be bent if all shareholders agree. Remember if people fall out, and it has happened in the past, the whole caper would be viewed with the deepest suspicion unless scrupulously correct. Dividends are not allowable against the company's CT computation.

Have I helped? Don't hesitate to follow up on this thread if you do not understand anything.