How often can I take a dividend from my limited company? 

In short, as often as you like, if you get a few things right first.

What is a dividend? 

Ever heard the saying, ‘it pays dividends’?  Think of dividends as the money you can take out of your company for all your hard work.

A dividend is a payment to you as a shareholder, which comes out of the profits built up in your limited company over time, after paying tax.

Dividends are one of the most common ways business owners get money out of their business to live on, after taking a salary.

Let’s myth bust 

There is a somewhat old fashioned myth that dividends can only be taken once a year as a ‘final’ dividend once you know what profits are left at the end of the company’s financial year.  

That is not the case, and ‘interim’ dividends can be taken regularly.  This is how a lot of limited company owners access money from their companies to live on.  You can’t do that if you only take a chunk once a year.  

There is also a myth that dividends can be paid willy nilly whenever you like, without considering anything.  Also not true.

 So I can pay myself dividends whenever I like?   

Yes, but only if there are sufficient profits to do so, after tax.

I repeat. After tax.

This means that you need up to date financial information; read this as you need to have your bookkeeping done.

Companies need to have enough ‘retained profit’ to cover the amount of dividend being paid, plus you need to factor in current year profit or loss as well.

For example, if you are looking to declare a dividend in January 2024, using September 2023 annual accounts – how much has changed profit wise?  You will need to estimate what the tax on any current profits will be to get to an accurate profit figure.

Alternatively, if the company is currently loss making, does the overall picture mean there are no retained profits left (profits over time) from which to take a dividend? Or if you flip that around, the company could have a current loss but enough retained profit from prior years to still cover a dividend.

You will see that up to date bookkeeping is key here.  You need it to be able to make a decision.

The admin bit

Brilliant, you have figured out you can take a dividend so what next?

You need to minute that you are taking one, and prepare a dividend voucher.  Basically a paperwork trail is needed.

Then pay the dividend, if you are taking the money out, or it can be credited to your Director’s Loan Account to be taken out in the future.

Don’t miss out

Even if you don’t ‘need’ to take a dividend out, it’s worth considering the dividend tax free allowance that every UK taxpayer gets (£1,000 for 23/24 tax year).  If you have profits available then it makes sense to declare the dividend and put it to your Director’s Loan Account as described above.  It’s tax free, so you are missing out on tax free income if you don’t.  You can’t backdate a dividend so make sure you review this each tax year.

I will do another blog on dividend tax but more information from HMRC on that is here.

This sounds complicated

Dividends are quite a technical area.  It is not as simple as your mates might make you think.

If you aren’t comfortable with figuring out your own dividend position in your limited company then this is where a good accountant will be able to help.  You know where we are if you need us!

And if you don’t know where we are, here is the contact us form where we will be happy to have a chat with you.

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