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 page 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.
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 printed, signed and filed with your Company’s Statutory Books (your company's paperwork). The Dividend Certificate should be printed, 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.
If the shareholder receiving the dividend is a basic rate tax payer then they will have no tax to pay on the dividend.
If the shareholder is a higher rate tax payer, there will be tax due on the dividend payment. This liability will be due when you file your personal tax return.
Remember to enter the amount of dividend you pay in your 123Books in the Banking section of the month you make the payment.