Do you have a set dividend plan? If so, do you stick to it?

The importance of a well calculated dividend plan is to optimise the tax thresholds and the lowest of the standard income tax rates is all the more crucial with the constant threshold and rate changes combined with the ever increasing household bills and cost of living.

Can’t I just take when I want?

A dividend is a payment a company makes to the shareholders if it has made a sufficient post-tax profit otherwise known as distributable profit; you mustn’t pay out more than the distributable profit held within the company.

To pay a dividend, you should:

• Calculate your after tax profits to date (profits after deducting 19% corporation tax) and confirm there are sufficient funds and profits to pay a dividend;
• Hold a meeting to ‘declare’ the dividend to be paid;
• Keep minutes of the meeting (even if you are the only director);
• Write up a dividend voucher showing the date, company name, names of the shareholders being paid the dividend, and the amount of the dividend.

We can help with all of these tasks.

So why should I plan?

Not only do you need to make sure you can legally take a dividend by meeting the criteria mentioned above but there is also tax implications to every dividend taken so here are just a few reasons why you should plan ahead:

• It can save you £000’s in tax – it can do this by either stopping you unknowingly going into higher rates than necessary but also by making sure you dont waste that lower tax bracket each year.
• No surprises! – by sticking to a dividend plan, that daunting deadline of 31st January will no longer be anything more than the last day of dry January (if you make it that far) as you will already know what your tax will be as it’s all part of the plan!
• Stress free – knowing exactly how much and when you should draw from your company gives you that reassuring budget to live on as you would if you were a salaried employee.

So now that you know you want a dividend plan what should you do?

We highly recommend that you get help from an accountant for the actual planning as there are lots of elements to consider and it is important to get it right. Your accountant will need the following to complete the plan;

• Details of all other income such as salaries or rental profits etc.
• Details of all personal pension contributions made or planned for the year.
• A personal budget – setting out what you need per month to live off. This helps us to highlight anything that you are paying from your personal pocket that could be paid by the company.
• Up to date and accurate bookkeeping.

If you would like help preparing a dividend plan we can help you with a bespoke plan suitable to your specific financial needs and make sure you are being as tax efficient as possible. So get in touch, we will set out a plan and all you have to do is stick to it.