Knowledge Centre

Once a company has worked out it’s profit and the amount of corporation tax that is due, what ever is left can be paid out as a dividend. Dividends are paid to shareholders of Limited Companies.

Before you can declare a dividend the company must ensure that there are sufficient post tax profits available. If you make a dividend payment and there is not enough post tax profit in the company (even if there is enough cash in the bank) then the dividend is illegal. In the Key Info pages of our 123Books system it will tell you how much profit is available to pay out as a dividend, this takes into account all expenses and corporation tax.

Note: You must keep your 123Books up-to-date with all income and expenses for this calculation to be correct.

How to declare a dividend

Once you are satisfied there is sufficient post tax profit, you need to declare the dividend by filling in a Company Board Minute and creating a Dividend Tax Certificate - examples are included with our Welcome to The 123 Way pack.

The Board Minute must be signed and filed with your Company’s Statutory Books (your company's paperwork). The Dividend Certificate should be signed and filed with your personal tax documents for your Personal Tax Return.

There are no limits to how many dividends that a company can declare; however in reality one a month is usually sufficient. You must complete a Company Board Minute and Tax Certificate for every dividend payment.

A Board Minute and Tax Certificate template are included with our 123Books so with our system this will only take you two minutes each time you pay a dividend.

Taxation of dividends

The first £500 of dividends that a tax payer receives are covered by the Dividend Tax Allowance. Above this and until you reach the higher rate tax band tax is payable at 8.75% of the dividend.

If the shareholder is a higher rate tax payer, there will be tax due at 33.75% on dividend payments above the higher rate threshold.

On dividends that exceed the additional rate band - currently set at over £150,000 you would pay tax at 39.35%

Remember to enter the amount of dividend you pay in your 123Books in the Banking section of the month you make the payment.