Alan Pink looks at the consequences of paying illegal dividends: and questions HMRC’s approach to taxing them.
In one of the P.G. Wodehouse novels, a sympathetic friend is siding with the victim of high-handed behaviour:
“But they can’t do that!”
The friend replies, “I know they can’t. But they have.”
This little passage is called to mind by the way company law and HMRC deal with dividends paid by a company which, according to the Companies Act, should not have been paid.
The legal rules
In order to understand what an illegal dividend is, it’s necessary to go into some detail on what the law says about when you may pay dividends, and when you may not. The Companies Act 2006 is one of those monster acts of Parliament that was the result of a number of
