When you operate your own limited company, there are two ways you can pay yourself – in the form of salary or dividends. Taking dividends is a popular way of paying yourself because this is usually more tax efficient than taking a salary.
Unsure how dividends work? We’ve shared all of the information you need in our guide.
What are dividends?
If your company has made a profit (the amount left after business expenses, liabilities and taxes), the remainder can be distributed to shareholders. Quite simply, dividends are an additional (and alternative) way of paying yourself from the profits available in the company.
How do dividends work?
Each year you get a dividend allowance which means you can only take up to this amount. Some limited company shareholders receive a salary they draw from the company, with the remaining profits taken as a dividend payment as this does not attract National Insurance contributions. 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).
How do I take dividends out of my company?
To take dividends out of your company, you will firstly need to hold a meeting with your company directors to ‘declare’ the dividend. A record of this meeting should be held along with minutes from the meeting, even if you are the sole shareholder of your company. This should include the date and amount to be issued, the shareholders present (even if it was just you) and whether any other business was discussed.
A dividend voucher must also be presented to each shareholder which outlines the dividend paid.
What is a dividend voucher?
Also known as a dividend declaration, a dividend voucher is a way to record who has received a dividend and at what point. This should include the following:
- Your limited company name
- The name and address of the shareholder
- Total number or percentage of shares owned by the shareholder
- Amount of tax credit
- Dividend amount paid
- Signature of the company director
What if there are two or more shareholders?
Dividends will be distributed to shareholders according to the percentage of the company which they own. All directors will receive shares at the same time, regardless of the work they do or the percentage of the company they own.
When and how often can dividends be taken?
Dividends can be paid at any time providing there are available profits. It’s entirely up to you when and how much you pay.
Do I need to be outside IR35 to draw dividends?
Yes, you must be outside IR35 to receive dividend payments. If your contract is caught inside IR35 you will only be able to pay yourself via a salary.
Do I pay tax on dividends?
Each year you will get a dividend allowance, meaning you only need to pay tax on any funds aove that amount. Below is a breakdown of the tax rates and amounts you can draw up to.
|Basic Rate||7.5%||From £2,000 to £37,500|
|Higher Rate||32.5%||From £37,501 to £150,000|
|Additional Rate||38.1%||£150,000 +|
How should I pay myself?
Most contractors find that paying themselves through a combination of salary, directors’ loans and dividends is the most tax efficient way of drawing money from their limited company. Though this will vary depending on your unique circumstances, it’s worth investigating the possibilities to find a combination which works for you. You can find more about your options in our guide to paying yourself.
For more information, you can speak to one of our experts by filling in the form below or calling us on 01442275789.