Charterhouse Blog

Dividends

Charterhouse provides accountancy services to a number of Limited companies. In this article we consider the issuing of dividends to shareholders and offer a checklist to ensure that you are complying with HM Revenue & Custom's (HMRC's) requirements.

Some of you who run your own Limited company business will be drawing a usual low level salary and supplementing this with a monthly dividend.

But are you doing things correctly?

  • Do you have different classes of issued share and if you do, do you know why?
  • Did you know that dividends are paid net of basic rate tax and when computing your tax returns the figure for dividends needs to be uplifted to reflect the gross and also identify the tax credit
  • Do you have other shareholders? And if you do are you paying dividends to them on a pro rata basis?
  • If you have multiple shareholders and not all of them are to receive a payment how do you deal with all the paperwork necessary for a dividend waiver. I guarantee whatever you do would not be right and as such could raise major issues with H M Revenue and Customs.
  • Are the dividends you are paying legal? To be legal they need to be paid out of retained profits; that is income less expenses less any corporation tax plus any profit reserves brought forward. As long as this is positive this can be the total dividend that you could declare. You are not allowed to declare dividends in excess of the positive reserves.
  • When you pay a dividend do you pay this dividend as a singular payment and not with your salary – well you should!!
  • Do you make separate dividend payments to different shareholders or if its husband and wife do you make the one payment for both parties? It is best to make separate payments to each shareholder.
  • When you make a dividend payment do you draw up formal minutes and do you issue dividend vouchers – well you should!!
  • Do you have a copy of the formal minutes and the dividend vouchers in case HMRC ask you to provide these?

If a dividend is paid without the correct supporting minutes and tax voucher you will not only be in breach of the Companies Act but will also not comply with H M Revenue and Customs and therefore the payment made can be challenged. This could mean that the payment is taxed as remuneration and subject to PAYE tax and National Insurance – a costly experience!!

Charterhouse is a forward thinking accountancy practice located in Harrow and Beaconsfield that does its utmost to provide excellent service to its clients. Charterhouse is a proactive partner and delivers the freedom to aim higher!

Logo Accountancy Age Top 50 + 50Logo Logo Logo Logo Logo Logo