Now that we are two months into the new tax year, it seems an appropriate time to cover a couple of questions that often come up in discussions with clients who operate through limited companies: what are dividends and what do I need to do to take dividends from my company?

We recently wrote about the smart way to take dividends. This explains what dividends are and how they work as well as outlining how to calculate the maximum your company can pay out as dividends, whilst balancing this with creating a bespoke tax plan to ensure the dividends you draw meet your needs.

Once you have decided on the value of dividend the company is going to declare – what next? Each dividend has to be formally declared as an interim dividend. This is one of the responsibilities for a director that you take on when you incorporate your business.

How do I declare a dividend?

A company can pay dividends to its shareholders if it has made sufficient post-tax profits but cannot pay out more than the distributable profit held within the company.

To pay a dividend, the directors need to:

• Calculate profits to date after deducting corporation tax and confirm there are sufficient funds and profits to pay the dividend;
• Hold a meeting to ‘declare’ the dividend to be paid;
• Keep minutes of the meeting that include certain required information, even if there is only one director;
• Prepare a dividend voucher showing the date, company name, names of the shareholders being paid the dividend, and the amount of the dividend.

Each shareholder must be given a copy of the relevant voucher and a copy of this and the meeting minutes should also be kept in the company’s records.

The directors can ask other professionals (for example, an accountant) to assist with some of these tasks but ultimately the directors are still legally responsible for ensuring dividends are correctly declared and documented.

If you would like to know how Hive can help, please get in touch.