Due to the financial difficulties inflicted upon many businesses by coronavirus, there are some instances where directors will be considering not collecting their dividends and/or renumeration. Whilst this should be a rather straight forward process, there are administrative duties that need to be carried out.
How can dividends be waived?
The tax on a set of dividends depends when it has been paid. Under the legislation, a dividend is treated as paid on the date when it is due.
However, a dividend is not classed as paid and there is no distribution until the shareholder personally receives the money, or the distribution of the dividend is unreservedly placed at the shareholder’s disposal, for instance by being credited to a loan account from which the shareholder has the power to draw.
Companies’ Articles often provide that:
- Final dividends may be declared by the company in general meeting and;
- Interim dividends may be paid by directors from time to time
As such, a final dividend that has been properly declared and which hasn’t got a specific date for payment results in an immediately enforceable debt.
When a final dividend is declared under the terms of a resolution which states that it is payable at a later date, then the debt is enforceable, and the dividend is due and payable on that later date.
However, an interim dividend can be varied and rescinded at any time before the payment is made – meaning it can only be regarded as due and payable when it is actually paid.
Directors, or other shareholders such as employees, can waive their right to be paid dividends. For this, a Deed of Waiver must be executed, dated and signed by shareholders and then returned the company.
Waivers created before the payment involves more formality than a simple request not to pay dividends, or to pay them elsewhere. The waiver also means you can select what can happen for all future dividends, or some for a select period of time, or for specific dividends.
However, it is important to remember that the waiver must be in place before the dividend is available for payment. For final dividends, this is before they are formally declared and approved by shareholders. For interim dividends, the waiver must be in place before the dividends have been paid.
An act that purports as a waiver after payment has been made will be treated as an assignment, or transfer of income and will be liable to tax under the settlements legislation.
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