A dividend may only be paid where there are sufficient distributable profits available.
So, ideally, if you are planning to pay frequent dividend payments to shareholders, you would need to keep up to date management accounts to ensure that there are sufficient distributable profits at each dividend payment event.
In practice, it is generally better to take a lower dividend until you know for sure that there are sufficient profits available. This information will be available when end of year accounts are produced.
If you pay dividends and there are not sufficient after tax profit available, then that payment is illegal under company law and will be treated as salary resulting in income tax and national insurance liabilities.
Each payment should also be supported by the necessary documentation. These are a copy of the minutes from the director’s board meeting approving the dividend payment and the dividend voucher.
For more information on paying dividends, please call 0845 680 2502
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