Have you paid unlawful dividends by accident?

Mistakes can happen even to large companies like NEXT PLC…

Whilst the Company always had sufficient reserves to pay the Relevant Distributions at the time that they were made, the Act required this to be demonstrated by reference to interim accounts filed at Companies House prior to payment. Regrettably, those interim accounts were not filed with Companies House until after the Relevant Distributions had been paid and after the lapse had been identified.  No fines or other penalties have been incurred by the Company.

So what are the rules….

Companies Act 2006 Section 830 – Distributions to be made only out of profits available for the purpose

(1)A company may only make a distribution out of profits available for the purpose.

(2)A company’s profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

(3)Subsection (2) has effect subject to sections 832 and 835 (investment companies etc: distributions out of accumulated revenue profits).

A distribution must be justified by

1. The Company’s last published accounts
2. Interim Accounts
3. Initial Accounts

In small businesses having the right paperwork is vital should HMRC raise any questions, you will need:

• Board Minutes
• Dividend Vouchers

steve@bicknells.net