Steps to take if you believe dividends were paid illegally

If a company in the UK paid out dividends (profits to shareholders) that it shouldn’t have, here’s what needs to be done to fix it:

1. Find Out Why the Dividend Was Illegal

  • Check the profits: Dividends can only be paid if the company has enough profits. If they paid more than they should have, it’s illegal.

  • Check the company’s financial health: Dividends shouldn’t be paid if the company doesn’t have enough money to cover its debts.

2. Get the Money Back

  • The shareholders who received the illegal dividends must pay the money back to the company. This should be done quickly to avoid more problems.

3. Fix the Accounts

  • The company needs to correct its financial records to show the right amount of profits and the wrong dividend. This might mean changing the company’s official accounts.

4. Submit Updated Accounts

  • If the company already filed the wrong accounts with the authorities (like Companies House), they need to file the updated accounts to reflect the changes.

5. Get Professional Help

  • It’s a good idea to talk to an accountant or a lawyer to make sure everything is fixed properly and in line with the law.

6. Understand the Consequences

  • For the company: The company might face problems if the illegal dividends are not corrected. In some cases, the directors could be personally responsible for paying it back.

  • For the shareholders: If they don’t repay the illegal dividends, they could face legal consequences.

7. Take Action Fast

  • The quicker the mistake is fixed, the fewer problems the company and its directors will have in the future.

In short, if a company paid dividends it wasn’t allowed to, they need to get the money back, fix their accounts, and make sure everything is done correctly. Getting help from professionals can make the process easier.

If you're unsure about whether your company has paid illegal dividends or need help correcting the issue, don’t hesitate to contact our tax expert for professional advice. We can guide you through the process, ensure compliance with the law, and help avoid potential legal and financial problems. Get in touch today to ensure everything is in order!

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