Co Director – Dividend/Increases in earnings

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    Hello all,

    We have a case where the claimant is the sole director of her own limited company.

    She pays herself the standard director’s remuneration of £110 per week and her HB/CTB entitlement was based on this.

    We reviewed the claim in June ’11 and discovered that the claimant had paid herself two dividends, £10,000 in December ’10 and a further £8,000 in March.

    I believe that these payments can be treated as income under HB reg 35(1)(a)(b).

    If this is the case, and I would welcome your thoughts on this initial point, there is the further issue of which period to apply the income. It appears that there are no rules regarding this other than using whichever method gives the fairest result?

    I understand that an authority may decide to use the rules for self-employed earners to assess the income of a company director if appropriate. In this scenario it seems to me there would be an argument for apportioning the dividends over the financial year as they were not the result of significant change in business.

    Any advice gratefully received.


    I would say the dividends are capital.

    However if that money has been siting in the company accounts for a while it should probably have been treated as capital all along.

    You should also look into notional income – it seems clear that the company could be paying a lot more than a token £110 per week.

    You’ll need to take a close look at the P&L accounts, balance sheets and company bank statements.


    Hi Michael,

    Thanks for you comments. My reasoning for treating the dividend as income is based on the following bit of caselaw:

    ‘The definition of “earnings” in regulation 19(1) was “in the case of employment as an employed earner, any remuneration or profit derived from that employment”, and R(SB)21/86 (a supplementary benefit case dealing with a similar definition) had held that “derived from” was to be given the wide meaning of moneys “having their origin in” the employment.’CH/2387/2002

    As an alternative to this approach can it be argued that as the claimant is the sole director and shareholder it would appear to be her choice alone to pay the £18,000 as a dividend instead of as a salary and therefore I should consider the question of notional income?

    I would prefer to take the first approach as this is a more straightforward argument, if it can be established.


    Dividends are capital derived from income and should be treated as capital to avoid double counting.

    Loads of previous threads on this subject (and to be fair there are several different opinions).

    Here’s a good ‘un from 2006:

    There would be nothing to stop you making an “in the alternative” argument if you’re doing an appeal submission: the dividends are either actual income or notional income. Same result.

    But I would also be looking at capital in the company accounts.

    Kevin D

    A possible further alternative: does HBR 41(3) apply?

    “(3) Any earnings to the extent that they are not a payment of income shall be treated as income.”

    Also, converting a non-disregarded source of capital into a disregarded entity can be deprivation (if there was “a significant operative purpose” to increase / obtain benefit) – R(IS) 7/98. There’s nothing to suggest the same principle can’t apply to income. So, has the clmt paid himself by way of dividends instead of “normal” earnings in the knowledge that this will be advantageous in terms of HB/CTB entitlement?

    Options potentially engaged are:

    1) the dividends are earnings (under HBR 41(3) or otherwise); or, in the alternative

    2) deprivation – R(IS) 7/98 principles; or, in the further alternative

    3) the dividend payment is in respect of a past period and therefore, upon payment, consitutes the capital of the claimant.

    If the clmt is undertaking “activities in the course of the business of the company”, HBR 49(5) cannot apply.

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