For a new small business owner, how to access the funds you need to live on yourself is a crucial question!
One of the primary ways you can take money from a limited company is via dividends. This is basically a payment to you of the profit (or part of it), from your business, after tax and adjustments.
So, how often can I take a dividend?
The short answer:
As often as you want really!
BUT
There are some things you’ve got to get right to do so.
The slightly longer answer:
There is a general myth about dividend payments. This dates back to when companies would often only declare ‘final’ dividends at a company’s Annual General Meeting. Indeed, some ‘Articles of Association’ (the document that governs certain legal procedures around the company) might have even required this to be the case.
However, times have changed. Most small limited company owners will instead take regular ‘Interim Dividends’.
Interim Dividends and the law
To make these dividends legal, you still need to take certain steps, including:
- To ‘declare’ the dividends
- To keep specific records
in the meantime, here’s a quick check list. You need:
- Proof that you had the profits to pay out (usually company accounts or a current Balance Sheet)
- Meeting minutes declaring the dividend
- An entry in your records / book-keeping software
- Production of a Dividend voucher is recommended
At this point you would usually take the money, although you don’t have to. It could instead be marked in your ‘Director’s loan account’ for payment later, for example.
Dividends can be a really useful tool for tax-efficiently extracting money for a limited company.
However, they can also be technically challenging, and planning for the potential personal tax bill on them can cause a major headache.
Any Questions ?
You can book a 1-2-1 consultation with us so you can ask simple questions, and then go on to divvy out the dividends with more confidence yourself. It’s a great way for you to get the help you need, when you need it.
FAQs
1. What are dividends in a limited company?
Dividends are payments made by a limited company to its shareholders out of the company’s profits.
2. How often can you pay dividends from your limited company?
Dividend payments can be made at any time as long as the company has sufficient distributable profits available.
3. Is there a specific frequency for dividend payments in a limited company?
There is no set frequency for dividend payments in a limited company. They can be paid out regularly or on an ad-hoc basis, depending on the company’s financial situation and the decision of the directors.
4. Can dividends be paid if the company is not making a profit?
Dividends can only be paid out of profits, so if the company is not making a profit or does not have sufficient distributable reserves, dividends cannot be paid.
5. How do I determine if my company has enough profits to pay dividends?
It is essential to review the company’s financial statements and consult with an accountant to ensure that the company has enough distributable profits before declaring and paying dividends.
6. Are there any legal restrictions on dividend payments in limited companies?
Yes, there are legal restrictions and guidelines that must be followed when paying dividends, including ensuring that the company has enough distributable profits and complying with statutory requirements.
7. What are the tax implications of receiving dividends from a limited company?
Dividends are subject to dividend tax, which is paid by the shareholders. The tax rates and allowances for dividends can vary, so it is advisable to seek advice from a tax professional.
8. Can dividends be reinvested back into the company?
Yes, shareholders can choose to reinvest their dividends back into the company by purchasing additional shares or through other means as outlined in the company’s dividend reinvestment plan.
What should I do if I have more questions about paying dividends from my limited company?