How to take dividends from a limited company

Updated: Sep 10, 2020

You can distribute dividends at any time. You just have to have MONEY in the bank and PROFITS in the business to do so. But, beware, at the end of your tax year the total of all your dividends taken must have been covered by profits earned after all expenditure (including salaries) and corporation tax.


HOW CAN I PAY DIVIDENDS?


Firstly, you will need to hold a meeting to ‘declare’ the dividend and keep minutes of the meeting, even if you’re the only director.


CAN I TAKE A BANK LOAN IN MY BUSINESS NAME TO PAY MYSELF A DIVIDEND?


Since the government unveiled the bounce back loan scheme a number of businesses have used the scheme to apply for loans and have used the money to pay dividends to cover personal expenses. If you take money out of your business without profits and do not repay within 9 months of the year end you could have to pay addition corporation tax of 32.5%. Ouch.


If you take more money out of a company than you’ve put in - and it’s not salary or dividend - it’s called a ‘directors’ loan’.

If your company makes directors’ loans, you must keep records of them.


DO I PAY TAX ON DIVIDENDS?


There is a dividend tax allowance of £2,000 for shareholders which is generally paid through self assessment. This is tax free dividends. From then on, any dividend received in the basic rate band are taxed at 7.5%. Then higher rate is 32.5%, followed by the additional rate at 38.1%.


You cannot count dividends as business costs when you work out your Corporation Tax.


You must usually pay dividends to all shareholders.


WHAT PAPERWORK DO I NEED TO ISSUE A DIVIDEND?


For each dividend payment the company makes, you must write up a dividend voucher showing the:

  • Date

  • Company name

  • Names of the shareholders being paid a dividend

  • Amount of the dividend

  • You must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records.


Need any help with planning to take a dividend or how to issue dividend paperwork or any other questions about how to pay yourself out of your business, email us at Active@ActiveLedgers.co.uk


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