Will new accounting rules affect your director’s dividend?

If you are a company director one way that you’re likely to reward your contribution to the business is by paying yourself an annual dividend.

New accounting rules (which came into effect in January 2015) now require companies to show more detail in their annual accounts and this change could make it harder for directors to allocate an appropriate dividend.

 

What’s different?

The key aim behind the change was to ensure consistent accounting between countries. Here in the UK this has changed how businesses can evaluate their assets and calculate their figure for retained profit (reserves). This process is of course fundamentally important when it comes to working out dividends.  In particular, if a company owns investment land or buildings, they’re now required to show the ‘fair’ value of these assets rather than the cost.

 

Distributable reserves

Not all reserves shown on your company’s balance sheet can be paid out as dividends.  Indeed, company law says that your dividend can only be paid out of profit (generally referred to as ‘distributable reserves’).

Therefore, profit which is yet to be made such as an income from a re-evaluation of a property becomes ‘non-distributable reserves’ and cannot be included in the dividend sum.

 

And there’s more

It’s not just property revaluations that count and a number of other changes could mean you’ll see balance sheet profits lower than they would have been under the old rules.

One example of this is that companies are now required to detail the cost of any staff holidays due, but not yet taken.

All in all it makes knowing how much of your company reserves can be distributed as a dividend, harder to assess.

 

A safe solution

Luckily there is a solution and all you need to do is ask your accountant to record an additional figure on your balance sheet showing how much of the reserves (retained profit) is now non-distributable.

This should be easy for them to do and for you, doing this could not only ensure you’re able to receive the very best possible dividend, it will also reduce the likelihood of your company making any illegal payments.

 

Does your accountant ‘go beyond’?

The key then is to talk to your accountant about your dividend payment and if you’re in any doubt, do remember that Aspirations is always proud to ‘go beyond’ in terms of the services we provide.

We also understand the complexities of the new 2015 accounting rules and how to ensure that everything is appropriately configured and brings you the very best dividend.

To find out more please call Aspirations today on 01634 298238.

You can also email us at info@aspirationsaccountancy.carciofinodev.co.uk

 

Disclaimer: Articles are accurate at the time of posting but may be affected by legislative changes and individual circumstances.  Please always contact us for personalised advise and assistance.

2016-04-15T16:55:04+01:00