OMB company owner asks:
When completing my management accounts, where should I post my dividends?
Acumenica answers:
The important thing to remember is that we are referring to management accounts, which are, by definition, for the use of management and owners of the company. They are not for external use and do not need to follow the format and rules expected in statutory accounts.
It’s important therefore that the accounts are presented in the most useful format for the management.
For tax purposes, many OMB owners arrange their financial affairs in a way that the majority of their income is paid in dividends after a very small salary, often as low as £8,000 to £12,000 per year. This can cause the profitability of the company to be falsely inflated. In these circumstances, we recommend that an adjustment is made in the management accounts so that the dividends are included as management salaries, or at the very least an appropriate “market” salary is included.
Not in the statutory accounts though!!
It’s important that you understand that this is an internal charge and needs to be taken back out of the P&L and posted to reserves in the Balance Sheet in the year end statutory accounts. Make sure also that tax relief is inly calculated on the actual payrolled salary, not the adjusted dividend amount.
Need further advice?
The Acumenica team are on hand to help business owners with management accounting as well as on other matters. To arrange a no-obligation confidential chat, please complete the form on our Contact Us page or call 03330 166559.
