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Original poster

Unpaid dividends

32 replies

Sl1985 · 10/11/2018 07:01

Hello ladies,

Just after some advice on what I can do regarding unpaid dividends.

My father has a company of which I have been a shareholder of for nearly 10 years. Just abit of backgrounders info - I was young when I signed as shareholder and didn’t (and still don’t) understand much about companies. I was forced to sign (dad was violent towards mum who was still married to him at the time. If we didn’t do what he said, he often took it out on our mum so we were always very compliant). The reason he made us shareholders was to reduce the amount of tax he would have to pay. We never received the dividends even though it was written in the reports that it was given, this was fine as I never wanted his money anyway. He would however pay the tax each year for us as understandably it isn’t fair for us to pay tax on something we never actually received.

This month he closed the company, however his accountant filled out a tax self assessment form for me which states how much dividends I “received” for 2017-18 and the tax which is payable for it in January 2019. I asked him for a cheque for this tax as I don’t know where he will be in January and he has basically said he’s not paying the tax due even though I never received the dividend! (I know- great dad right!)

I’m just wondering what my rights are here? I don’t want the dividend (which this year was about £40,000), I just want the money for the tax (which is about £11.000) as I cannot afford to pay this and I know the HMRC can add interest to unpaid tax.

What can I do? Would I have a case legally to get this back from him? There are about 10 years worth of unpaid dividends here

Thanks and I hope this query made sense!

OP posts:
DamsonWhine · 10/11/2018 07:14

Yes it make sense. You need to speak to a solicitor specialising in corporate law and/or litigation and possibly an accountant who can check the accounts for you.

A strong letter may be enough to make them pay it over. Otherwise it’s going to get very expensive. If you really don’t want the dividend that’s fine but I would be wanting to see evidence that the previous tax had been paid.

Be aware if this goes quite far with legal action there’s a possibility your dad will be prosecuted for unlawful tax avoidance. He can’t keep your dividends for himself, that’s defrauding HMRC, not tax planning.

darceybussell · 10/11/2018 07:35

He has stolen £40,000 from you. Would you be prepared to go to the police?

Original poster
Sl1985 · 10/11/2018 07:49

Thanks for the replies ladies.

When you say expensive, do you mean for me or him? I’m on a nurses salary so can’t afford huge legal fees.

I don’t want his money, and even though he’s been awful I don’t want him to get into trouble either so wouldn’t feel comfortable going to the police and him getting prosecuted. I just want to get the money to pay off the tax. I know the tax has definitely been paid for previous years, it’s just now the company has closed (not of his choice) he is being greedy and trying to get out of paying things.

I’m also worried about getting into trouble myself. I knew it was going on so if we went down a legal route would he be able to use that against me?

OP posts:
Collaborate · 10/11/2018 07:56

You won't get in to trouble for it. In theory you can claim from him the last 6 years dividends. Up to you how far you go on this, but the power is all yours.

jay55 · 10/11/2018 08:04

Has the return been submitted?
If not don't.
Revoke the right for the accountant to file on your behalf and don't sign the return.
You shouldn't commit tax fraud, even if it is to your detriment.

Original poster
Sl1985 · 10/11/2018 08:15

The return has already been submitted. It was done at the end of October. Will I get in trouble for this??

Another thing I forgot to mention was when he made us shareholders he also made us directors. I resigned from this last year and never had access to any of the money anyway and I was never paid anything from the company as a director. Will that complicate things?

OP posts:
Original poster
Sl1985 · 10/11/2018 08:16

I feel like this could get very messy if I went down the legal route. I don’t want to get in trouble but can’t afford this tax that’s due

OP posts:
dickyduckydido · 10/11/2018 08:21

Your tax return is your responsibility. You have submitted a return to HMRC which says you received £40,000 -so as far as they are concerned you did receive this. YOU are now responsible for the tax on this. If you did not receive the money, you can file an amended tax return without this money on. The onus would then be on your father as his company accounts would not match your return. This would get him in trouble though.......

akkakk · 10/11/2018 08:24

Dear Mr / Mrs HMRC
This company filed these accounts saying that I had £40k in dividends and now owe you £11k in tax - however, I have never been paid that money - could you please help me unpick this...

They are very helpful if you are honest... as for your father getting into trouble, I would suggest that he knows what he is doing and he is basically screwing you - so don’t be the fall-guy

And tax on dividends is effectively 7% which at £40k is only £2,800

Original poster
Sl1985 · 10/11/2018 12:36

Thanks all. I think I will just have another word with him and let him know the possible repercussions should he decide not to pay that tax for me.

And @akkakk I had a look at the tax return form and it definitely says tax due £14362 (more then I originally wrote this morning). I wonder how the accountant came up with that figure?

OP posts:
akkakk · 10/11/2018 12:43

A lot to unpick then - tax for corporations unless very wealthy is 19% paid by the company then the dividends are only 7% unless you are in a higher tax bracket - no way it is £14k on £40k

BritInUS1 · 10/11/2018 12:48

Akkakk no tax on dividends depends on your other income !

Also don’t write to hmrc they won’t get involved you need a solicitor

Isleepinahedgefund · 10/11/2018 15:26

Your father knows what he doing and knows exactly the repercussions for you - he has a vested interest in paying your tax to keep you quiet whilst the company was running, but now he has nothing to lose.

You can write to HMRC but I suspect their answer will be "pay up".

It's a hard one to unpick.
Your father has been using you being a shareholder as a tax avoidance measure.
You knew this was happening.
It could be construed that you were complicit.

I imagine it will be very expensive in legal fees if you take it on. You'd also be asking a court to be complicit in the tax avoidance if you ask them to force your father to pay he tax. And you'll need to explain why you went along with this for so long and it's only a problem now you're being billed for the tax.

akkakk · 10/11/2018 17:18

Akkakk no tax on dividends depends on your other income !

Not true - a recent tax of 7% was introduced on dividends..,

akkakk · 10/11/2018 17:21

How is declaring dividends tax avoidance it is quite legal... all that appears to be dodgy here is that the father didn’t pay those dividends to the shareholder, but presumably to himself - HMRC won’t see that as tax avoidance...

All they will want is their tax on the dividends... the OP telling them that she didn’t get paid the dividends means that they will pursue where the money went and as they have the biggest joined up database in the country, they will track it...

The OP appears not to have done anything wrong and if she was not paid the dividend she will not be liable for the tax, therefore talking to HMRC will be fine

eurochick · 10/11/2018 17:31

Of course it's tax avoidance (or rather evasion) - he would have paid a higher rate of tax if it had all been declared in his name.

akkakk · 10/11/2018 23:39

Ahh yes - for him, but not for OP who has done nothing wrong...

jay55 · 11/11/2018 09:31

Dividends, first £5k free from tax, (reducing to £2k from 2018/19)
7.5% for basic rate, then 32.5% on higher rate.

However, you also pay ahead for next year, so you pay what you owe (minus what was paid on account last year) PLUS the same as what you owe this year for next year spread over 2 payments January and July.

If the amount the accountant says you are due to pay includes payment on account for next year, you can get this part removed, as the company has closed and you anticipate your earnings from dividends to drop to zero.

Still seems a ridiculously high amount to owe, i don't know how it works when you also have a paye salary, if that uses up your basic rate tax allowance and so you have to pay all the dividends at the higher rate.

There are options
Your dad gives you the money(dividend or tax balance)
You drop your dad in it
You ask hmrc for a payment plan
You go bankrupt

NoSpend19 · 11/11/2018 09:38

The OP works and so the tax on £40k of dividends is highly unlikely to be 7%. It will depend on all of her income. It will be partly at higher rate and therefore way more than 7% Hmm

Kazplus2 · 11/11/2018 15:36

Can you resubmit your tax return stating you have not received the 40k (which is true). Warn your dad you are going to do this.

Isleepinahedgefund · 11/11/2018 17:14

Please don't think for a minute that HMRC will go off chasing the money on your say so..... they will chase you for the tax though.

Footle · 11/11/2018 17:45

Your father has thrown you to the wolves. How convenient for him that you won't throw him to them!

Isleepinahedgefund · 11/11/2018 18:34

The dividends are attached to the shares, OP is the owner of the shares. It's not as simple as saying/showing "I didn't receive the funds" because it's a paper exercise, and the audit trail shows her shares received that dividend.

It's pretty standard practice actually, I see it all the time where for instance the husband is the director, but he and his wife are both shareholders because it is more tax efficient, both sets of shares received a dividend but when you look at where the funds actually went they were all transferred into an account in the husband's name. HMRC have seen it all before.

Kazplus2 · 11/11/2018 18:36

Her shares may have received the dividends but the funds were not allocated to an account in the owners name. So again, I would challenge the receipt of the dividend.

NoSpend19 · 11/11/2018 19:36

Akkakk no tax on dividends depends on your other income !

Not true - a recent tax of 7% was introduced on dividends..,

akkakk you are not correct I'm afraid. The rate of 7.5% would only be payable on any part of the dividend payment falling within the basis rate band.

www.gov.uk/tax-on-dividends