Guide to Dividends
What are dividends?
Quite simply, dividends are an additional (and alternative) way of paying yourself from the profits available in the company. Dividends are a portion of the company’s earnings that are returned to shareholders i.e. you; this is profit you receive after tax.
How do dividends work?
Some limited company shareholders receive a salary they draw from the company, this attracts both employers and employees National Insurance, with the remaining profits taken as a dividend which does not attract National Insurance. Of course company owners don’t need to take all available funds from their company, they can leave the money within the company and make use of tax planning (we would advise speaking to an accountant about this and have the required knowledge, experience and expertise to help you with this).
What if there are two or more shareholders?
On the whole if there are two or more shareholders all shareholders will receive their dividends at the same time based on the shares held by each shareholder. This is an important consideration if choosing to go into a partnership as disputes about workload often occur at dividend time.
When and how often can dividends be taken?
Dividends can be paid at anytime providing there are available profits. It’s entirely up to you when and how much you pay, they are your profits after all. You can choose to pay weekly, monthly, quarterly and annually. We will help you calculate the amount you can take ad dividends.
What is a dividend declaration / dividend voucher?
A dividend voucher is simply a way to keep a record of when, how much and who has received a dividend and includes:
Do I need to be inside or outside IR35 to be eligible to be paid through dividends?
You must be outside IR35 to receive dividend payments.
Do I pay tax on Dividends?
The tax credit is being scrapped since April 2016 and all dividend income will be treated as gross (i.e. untaxed) income.
All taxpayers will have a tax-free dividend allowance of £5,000 a year. After this, the rate of tax payable on dividends will depend upon your other taxable income. Essentially, beyond the £5,000 tax-free dividend allowance, the personal tax liability for taxpayers increases by 7.5% for basic rate band. This is why it is now more important and wise to acquire professional services of qualified accountants and tax advisers who can advise you in right direction.
Quite simply, dividends are an additional (and alternative) way of paying yourself from the profits available in the company. Dividends are a portion of the company’s earnings that are returned to shareholders i.e. you; this is profit you receive after tax.
How do dividends work?
Some limited company shareholders receive a salary they draw from the company, this attracts both employers and employees National Insurance, with the remaining profits taken as a dividend which does not attract National Insurance. Of course company owners don’t need to take all available funds from their company, they can leave the money within the company and make use of tax planning (we would advise speaking to an accountant about this and have the required knowledge, experience and expertise to help you with this).
What if there are two or more shareholders?
On the whole if there are two or more shareholders all shareholders will receive their dividends at the same time based on the shares held by each shareholder. This is an important consideration if choosing to go into a partnership as disputes about workload often occur at dividend time.
When and how often can dividends be taken?
Dividends can be paid at anytime providing there are available profits. It’s entirely up to you when and how much you pay, they are your profits after all. You can choose to pay weekly, monthly, quarterly and annually. We will help you calculate the amount you can take ad dividends.
What is a dividend declaration / dividend voucher?
A dividend voucher is simply a way to keep a record of when, how much and who has received a dividend and includes:
- Limited company name
- Name and address of shareholder
- Total number or percentage of shares owned by shareholder
- Amount of tax credit
- Dividend amount paid
- Date and Signature of the company director
Do I need to be inside or outside IR35 to be eligible to be paid through dividends?
You must be outside IR35 to receive dividend payments.
Do I pay tax on Dividends?
The tax credit is being scrapped since April 2016 and all dividend income will be treated as gross (i.e. untaxed) income.
All taxpayers will have a tax-free dividend allowance of £5,000 a year. After this, the rate of tax payable on dividends will depend upon your other taxable income. Essentially, beyond the £5,000 tax-free dividend allowance, the personal tax liability for taxpayers increases by 7.5% for basic rate band. This is why it is now more important and wise to acquire professional services of qualified accountants and tax advisers who can advise you in right direction.
