{"id":4546,"date":"2023-06-02T09:22:24","date_gmt":"2023-06-02T08:22:24","guid":{"rendered":"https:\/\/cloud9accountingteam.co.uk\/?p=4546"},"modified":"2023-06-02T09:22:24","modified_gmt":"2023-06-02T08:22:24","slug":"have-you-declared-your-dividends-correctly","status":"publish","type":"post","link":"https:\/\/cloud9accountingteam.co.uk\/sk\/have-you-declared-your-dividends-correctly\/","title":{"rendered":"Have You Declared Your Dividends Correctly?"},"content":{"rendered":"

Dividends are a popular and tax-efficient way to extract profits from a personal or family company once a small salary has been paid. However, the rules surrounding dividends are strict and failure to comply may mean that HMRC will tax payments purporting to be dividends as employment income rather than as dividends. This will mean a higher tax bill, plus National Insurance.<\/p>\n

Paid from retained profits<\/strong><\/p>\n

Dividends are a distribution of profits and can only be paid if a company has sufficient retained profits from which to pay the planned dividend. Before paying a dividend, the director(s) must consider the company\u2019s financial position, particularly if it has changed since the last set of accounts was prepared.<\/p>\n

Any dividend paid in excess of the retained profits is an illegal dividend.<\/p>\n

Paid in proportion to shareholdings<\/strong><\/p>\n

Where more than one person holds shares of a particular class, dividends must be paid in proportion to shareholdings. In a family company, this restriction may be overcome by using an alphabet share structure to provide the flexibility to tailor dividend payments to the shareholder\u2019s personal circumstances.<\/p>\n

Types of dividends<\/strong><\/p>\n

There are two types of dividends \u2013 interim dividends and final dividends. Interim dividends are paid throughout the year, for example, to a director to meet their living expenses. A final dividend is paid annually after the end of the accounting period.<\/p>\n

Declaring dividends<\/strong><\/p>\n

Dividends must be properly declared in accordance with company law requirements. While the directors can simply decide to pay an interim dividend, a final dividend must be declared in accordance with the procedure set out in the Articles of Association. Where the Model Articles have been adopted, a final dividend should be declared by ordinary resolution. The directors must recommend the amount of the dividend and this must be agreed by the shareholders in a general meeting. This normally happens at the AGM.<\/p>\n

The company should prepare Board minutes. These should contain:<\/p>\n