No turning back by Elliot Green

Whether director drawings be changed from dividends to salary after the event is an often- debated issue. The short answer is no – and here Elliot Green explains the reasons why.

This question was answered in the case of Jones v The Sky Wheels Group Ltd [2020] EWHC 1112 (Ch), and in general terms the answer is no they cannot.

Director drawings are monies drawn down from a company and paid over to the director personally. This is usually done to reward a director for their services to a company.

Christopher Jones was a director of The Sky Wheels Group Ltd (‘the Company’) and he fell out with the majority shareholder David Schofield, due to amongst other things the deployment of certain of the company’s funds, according to the case report.

As a result, it was reported in the court’s judgment provided by Mr Justice Snowden (now Lord Justice Snowden), that Schofield excluded Jones from the management of the company.

The case involved an application by Jones to set aside a Statutory Demand issued by the company and its subsequent appeal when it was set aside by Deputy District Judge Watkin.

The company issued a Statutory Demand on Jones for payment of an alleged overdrawn director’s loan account in the sum of £418,609.28, later reduced to £340,745.57.

The company operated the clearing of the directors’ loan accounts in a typical SME fashion by drawdown of monies during the period, then offset by way of an annual dividend and a minimal salary to minimise the tax consequences.

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