Dividends Payments

As a director of a company, understanding the process of issuing dividends is crucial to fulfilling your responsibilities and maintaining compliance with legal obligations. This guide outlines the steps involved in declaring and distributing dividends to shareholders. 

Dividend Allowance

You do not pay tax on any dividend income that falls within your Personal Allowance (the amount of income you can earn each year without paying tax).

You also get a dividend allowance each year. You only pay tax on any dividend income above the dividend allowance.

2024-25 £500
2023-24 £1000
2022-23 £2000
2021-22 £2000

Director Responsibilities

As a director, your primary duty is to act in the best interests of the company and its shareholders. This includes understanding and adhering to all legal requirements regarding dividends.

Are Profits Available?

The company must have sufficient profits available to pay the dividends.

You should ensure that your up-to-date accounts provide enough capital in the business to cover the amount of dividends issued.

If the company does not have sufficient capital available, the dividends are deemed as illegal.

Available capital may be impacted by future liabilities such as taxes that will become due, or provisions, so ensure these are taken into account.

Hold a Board Meeting

A board meeting should be called to discuss and approve a dividend distribution.

You should record the minutes of the meeting to document the decision making process.

Set a Dividend Amount

Decide on the dividend amount to be paid to shareholders. This can be expressed as a per-share amount or a percentage of the share's face value.

You may consider the amount per share you will distribute to each share type, for example, Share A - £100 per share, Share B - £50 per share.

Ensure that the proposed dividend is within the company's distributable profits and complies with any legal limitations.

Declare Dividends

Following the board's approval, formally declare the dividends by passing a resolution at the board meeting. The resolution should specify the dividend amount, record date, and payment date.

The record date is the date on which shareholders must be registered in the company's books to receive the dividend. The payment date is when the dividends will be distributed to shareholders.

You can issue Share Certificates to the shareholders for their records.

Distribute Dividends

Arrange for the distribution of dividends to shareholders on the specified payment date. This can be done through electronic transfer, checks, or other approved payment methods.

Ensure that accurate records of dividend payments are maintained, including the names of shareholders, dividend amounts, and payment dates.

The shareholders are likely to be required to complete a self assessment in order to pay the tax due on the dividends.

There is usually a tax free amount of dividends on which tax isn't due. Anything above this amount will require dividend tax to be paid.