Many small businesses trade as limited companies, and an efficient way of taking money from the company is to be paid part salary, part dividend. The salary bit is pretty straight forward, so what about the dividend?
A dividend is a reward paid to shareholders for investing in shares in a company. It is the same principle as for large publically quoted companies.
A dividend can only be paid from retained reserves. These are post tax profits which haven’t already been distributed.
The first step is for the company to prove that it has made retained reserves. This can be shown by the annual accounts, or alternatively periodic management accounts should be sufficient.
Once the company shows that it has retained reserves, the directors need to meet to consider the amount of dividend to be paid. This meeting should be minuted.
Finally, a tax voucher needs issuing from the company to all shareholders, to confirm the amount of net dividend and tax credit. This information should be used by the shareholder when completing their personal tax return.
That’s it. The process is fairly straight forward, and is a service which we provide to all company clients.
NB the consequences of getting the process wrong can be quite horrific, and if you are in any doubt as to how to maintain your records, you should seek professional help. For an initial free meeting, please contact us.