By Angela Backhouse, Accountant at Hive Business
As another tax year passes and we offer our advice on various accountancy solutions here at Hive, I often get asked the questions – what is a director and how can I pay dividends to myself?
WHAT IS A DIRECTOR?
If you operate a limited company, you will most likely be wearing two important hats, that of a shareholder and also of a director. It’s important to understand the distinct difference in these roles, especially when it comes to declaring dividends.
As a shareholder, you are simply an investor expecting a nice return (dividend payment) each year.
However, as a director, you’re legally responsible for running your company and making sure information is sent to Companies House on time, including the confirmation statement, the annual accounts, any change in your company’s officers or their personal details, a change to your company’s registered office, or any change in your company’s person of significant control (PSC) details.
You can ask other professionals to take on some of these tasks (for example, an accountant) but ultimately you’re still legally responsible for your company’s records, accounts and performance.
You must abide by the company’s articles of association: these are written rules about running the company, agreed by the members, directors and the company secretary at incorporation initially.
A director must act in a way which is likely to promote success for the company, to the benefit of its shareholders. Directors should base any decisions made on the consequential outcome to the shareholders, the business reputation and the interests of other stakeholders such as employees and the community.
DIVIDENDS – CAN I JUST TAKE MONEY WHEN I WANT?
One of the responsibilities for a director is to declare the interim dividends to be paid throughout the year.
A dividend is a payment a company makes to the shareholders if it has made a sufficient post tax profit otherwise know has distributable profit; you mustn’t pay out more than the distributable profit held within the company.
To pay a dividend, you should:
- Calculate your 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.
You must give a copy of the voucher to the shareholder(s) that have received a dividend and keep a copy of this and the meeting minutes in the company’s records.
These are just some of the main responsibilities of being a director, you can find more information here at Companies House.
If you would like to know how Hive can help you more with your duties and responsibilities, please get in touch.