Paying dividends properly
For many owner-managed companies, a combination of salary and dividends is the main way profit reaches the people who own the business. Dividends are not a salary and cannot simply be taken whenever cash is available. A company can only pay a dividend out of profits available for distribution, and the decision has to be made and recorded correctly.
What our dividend planning covers
- Available profits. We check the company's distributable reserves using up-to-date figures, not just last year's accounts, and allow for tax due on current profits.
- Timing. Dividends are taxed in the tax year they are paid, so the timing of a dividend can affect which rate band it falls into.
- Personal tax. For the 2026/27 tax year, there is a £500 dividend allowance, and dividends above it are taxed at 10.75% within the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The current figures are on GOV.UK under tax on dividends.
- Salary and dividend mix. We look at your director's salary and other income together, so you can see the overall tax position for the year.
- Several shareholders. Where there are different share classes or family shareholders, we check that dividends follow the company's articles and the share rights.
The paperwork we prepare
- Board minutes recording the directors' decision to declare an interim dividend, or the resolution approving a final dividend.
- Dividend vouchers for each shareholder showing the date, amount and shares held.
- Entries in your bookkeeping so the dividend is posted correctly, rather than left as an unexplained withdrawal.
Good paperwork matters. Without it, money taken out may be treated as a director's loan instead, with different and often less helpful tax results.
Interim and final dividends
Most owner-managed companies pay interim dividends, which the directors can decide on during the year. A final dividend is recommended by the directors and approved by the shareholders, usually after the year-end accounts are prepared. The paperwork differs slightly, and we make sure each dividend follows the right route.
When dividends go wrong
Dividends paid without enough profit are unlawful and may have to be repaid. This often happens when management figures are out of date or tax has not been provided for. Keeping your bookkeeping current and reviewing management accounts before declaring a dividend reduces that risk. If your company structure makes dividend planning awkward, for example where several family members hold shares, our restructuring advice may help.
What we'll need from you
Up-to-date company figures or access to your software, details of shareholders and share classes, your other income for the year, and an idea of how much you would like to take and when.
For company owners in Kent
We help directors and shareholders across Kent plan and document their dividends, usually alongside their payroll and year-end accounts. Get in touch before your next dividend and we will check the numbers with you.
Frequently asked questions
How often can my company pay dividends?
As often as the directors decide, provided there are enough available profits each time and each dividend is properly declared. Many owner-managers pay interim dividends monthly or quarterly. What matters is that each payment is backed by up-to-date figures and documented with minutes and vouchers.
Do I pay tax on dividends if I am a basic rate taxpayer?
Dividends above the £500 dividend allowance are taxable. For 2026/27 the basic rate of dividend tax is 10.75%. You may need to report dividends through Self Assessment, depending on your other income. We work out your liability alongside your salary so there are no surprises.
Can dividends be paid to shareholders in different amounts?
Within one class of shares, dividends are normally paid in proportion to shareholdings. Different amounts usually need different share classes set up under the articles. Arrangements involving family members can attract specific anti-avoidance rules, so we review the structure before any uneven dividends are paid.
What happens if a dividend turns out to be unlawful?
A dividend paid without enough available profits is unlawful, and shareholders who knew or should have known may have to repay it. In practice it is often reclassified as a director's loan, which brings its own tax issues. Checking reserves before each dividend avoids most of these problems.
Dividend Planning across Kent
We help clients throughout the county, including: