Hi,
I have just had a confusing (for me) conversation with my accountant on when dividends should be declared in personal tax returns.
Let’s say that a LTD accounting period goes from 31/05/23 to 01/06/24 (not the real dates).
The LTD issues a dividend on 10/05/24 and pays it on the same day.
My understanding until now was that the recipient should declare the received dividend in their 2024-25 personal tax return.
That’s because 10/05/2024 falls after 05/04/24 (which marks the end of the 2023-24 accounting period for personal tax), and because the dividend was paid out on 10/05/24, which falls within the 2024-25 personal tax accounting period.
However, my accountant suggested that in a case like this, the dividend should be recorded in the 2023-2024 personal tax return, which should be amended post-filing to accommodate for that.
Because they did not provide a reason for this (it was via email), because there might be some further reasons that they did not disclose, yet, I am going to re-discuss this with them.
However, in the meantime, I am researching around in case I missed something.
Is there anything else to consider, about when one needs to declare dividends in their personal tax returns?
I’m not an accountant. My understanding is the same as yours but not for exactly the same reason. My understanding is that the dividend must be declared by the recipient in the personal income tax year in which the dividend is declared, regardless of when the dividend is actually paid out.
The dividend income is declared on your tax return on the date that it became payable … this is often the date it’s declared, but is not necessarily the same. The date of actual payment doesn’t come into it, unless this was also the payable date.
Your dividend voucher will usually say which date is relevant. If it’s your own company, and your accountant is preparing the accounts, go back and ask him for the relevant dates - declaration of dividend and date payable. He should give you a dividend voucher which shows them.
Note that dividends cannot be declared retrospectively.
Your dividend voucher should state whether the dividend is an interim or a final dividend. It is a legal requirement for the company to produce dividend vouchers.
It is very unusual to go back and change a tax return for something like this, so I’d challenge your accountant as to why.
The company’s year-end and the dates on which dividends are declared is usually an irrelevance. For SA tax return purposes it is the dividend payable date (as noted on the dividend voucher) that determines which tax return it is included in.
Thanks, in your personal tax return, would you declare it in the year in which the dividend was issued (but not paid), even if you follow a cash basis rule for your personal tax return?
Thanks,
I have since spoken to my accountant, and we cleared that while the dividend was issued at the end of the accounting period, it was paid during the following accounting period.
Which raised an issue in Quickfile Trial Balance.
When the dividend was issued (say) closing date of 2022-23, I recorded a journal entry
For instance:
(3102) Dividends Paid DR 999 GBP
(1201) Director’s Loan Account DR 999 GBP
When the dividend was paid during the following accounting year, the bank transaction was tagged as a debit to the director’s loan account.
As a result, in the trial balance, under capital and reserves, “3102 the dividends paid” account does not balance out (nothing in the bank transaction for paid dividend specified that it was a paid dividend). The total numbers of the TB do balance out, but I would like the dividend section to balance out correctly, too.
If I mark the dividend payment transaction as (3102) Dividends Paid, QF seems to think that a new dividend has been issued and paid, and does not even out the previous (3102) Dividends Paid balance either.
I suspect that some journal can help balance this out, but does anybody know how?
Assuming you mean CR 1201 rather than DR then that all looks correct to me. When the company declared the dividend your journal effectively marked it as having been paid out of the director’s loan “bank” account, meaning you (the director) loaned the company money that it used to pay the dividend. In the year end balance sheet you’d see 999 debit on 3102 and a matching 999 liability on 1201.
The following accounting period the company repaid this loan to its director, which would have been tagged as a transfer from the company current account to the director’s loan account.
Aw yes, well spotted.
In my records it was indeed 1201 CR.
I think that ultimately in my case the problem might be that in order to see the transactions balancing out, I need first to close the accounts for the year.
Until then, as a layman, I struggle to read it.
Thanks for your answer!
