Dividends: A Guide to Declaring Them Correctly and Avoiding Unnecessary Tax Bills

June 13th, 2023

Dividends are a great way to extract profits from your personal or family company, but it's important to follow the rules to avoid a higher tax bill and National Insurance. Before paying a dividend, make sure your company has sufficient retained profits to pay it and that you're paying in proportion to shareholdings.

There are two types of dividends: interim and final. Interim dividends are paid throughout the year, while final dividends are paid annually after the end of the accounting period. To declare a final dividend, you must follow the procedure set out in your Articles of Association. The directors must recommend the amount of the dividend, which must be agreed by the shareholders in a general meeting.

The company should prepare board minutes that include the name of the company, the date that the dividend was approved, the name of the director(s), and the company's address. The minutes should also set out the amount of the dividend per share, the type of shares in respect of which it is being paid, the date it is being paid, and the date on which shareholders need to be registered at Companies House in order to be eligible to receive the dividend.

Whenever a dividend is paid, the shareholder should be given a dividend voucher that contains their name and address, the company's name, registered office and registration number, the date of issue, the amount of the dividend paid, and the signature of the company director(s) or a company officer. Shareholders should retain these vouchers as they will be needed when completing their personal tax return.

So there you have it! Make sure you're following the rules when declaring dividends to avoid any unnecessary tax bills.