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  • Writer's pictureDaniel Anderton

A guide to limited company dividends for UK business owners

Limited company dividends are a way for business owners to distribute profits among shareholders, but it's important to understand the rules and regulations surrounding them in the UK.

First, it's important to note that dividends can only be paid out of a company's profits, after corporation tax has been paid. This means that if a company is not profitable, it cannot distribute dividends to shareholders. In addition, it's important to ensure that the company has enough reserves to cover any potential liabilities before paying dividends.

When it comes to tax, dividends are subject to different rates and allowances than earned income. Each shareholder has a dividend allowance, which is currently £2,000 per tax year. Dividends received above this allowance are subject to tax at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.

It's important to keep accurate records of all dividends paid and to issue proper documentation, such as dividend vouchers, to shareholders. Additionally, the company must notify HM Revenue and Customs (HMRC) of any dividends paid.

When considering the payment of dividends, it's important to seek professional advice to ensure compliance with the relevant laws and to ensure that it's an appropriate move for the company's current financial situation.

It's also important to note that dividends should be considered in the context of overall remuneration and that it should not be used as a way to avoid paying tax on salary. The company needs to be able to justify the payment of dividends and that it is not being used as a way to avoid tax.

Overall, limited company dividends can be a useful tool for distributing profits among shareholders, but it's important to understand the rules and regulations and to seek professional advice to ensure compliance and appropriateness.

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