How to do it properly
- Check the profit. A dividend must come from retained profit after corporation tax. Confirm it is there.
- Hold a board meeting. Record the decision to declare the dividend in a board minute.
- Issue a voucher. Give each shareholder a dividend voucher showing the amount and date.
- Plan the tax. The first £500 is tax free, then the rate depends on your income band. Set money aside for the January bill.
- Report it. Enter the dividends on your Self Assessment return and pay the tax by 31 January.
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Frequently asked questions
How do I take a dividend from my company?
Check there is enough retained profit after corporation tax, hold a board meeting and record it, issue a dividend voucher, then report the dividends on your Self Assessment return.
How much dividend is tax free?
The first £500 of dividends each year is tax free through the dividend allowance. Above that, dividends are taxed at 8.75%, 33.75% or 39.35% depending on your income band.
Do I need paperwork for a dividend?
Yes. Each dividend needs a board minute recording the decision and a dividend voucher for each shareholder. Without them the arrangement is hard to defend.
When do I pay tax on dividends?
Through Self Assessment, by 31 January. Dividend tax is not deducted at source, so set money aside for the bill.
Can I take a dividend if the company has no profit?
No. It must come from retained profit after corporation tax. Paying without sufficient reserves is unlawful and can be reclassified by HMRC.