📢 What Are Dividends?
Dividends are payments that limited companies can make to their shareholders from profits. 💰 They’re a great way to reward investment or performance, but they’re taxed differently from other types of income.
❓ Can Any Business Pay Dividends?
Most business owners pay themselves from the profits they generate. However, because limited companies are legally separate from their owners, they must follow a formal process to declare dividends. 🏛️
Every business structure has its pros and cons, but some people prefer running a limited company as it allows them to take part of their income as dividends—often a more tax-efficient option.
📊 How Are Dividends Calculated?
Dividends are paid to registered shareholders based on the type and number of shares they hold. In some companies, shareholders are also directors, but that’s not always the case. 👥
To offer more flexibility, some businesses create different types of shares, giving shareholders varying entitlements based on their role in the company.
🔍 Shareholders vs Directors – What’s the Difference?
Shareholders own the company by holding shares (often called ‘members’).
Directors run the business and oversee daily operations.
In smaller businesses, one person might be both the sole shareholder and director. 📌
👉 Want to know more? Read our guide on The Difference Between a Shareholder and a Director.
💷 How Much Can a Company Pay in Dividends?
There’s no set limit on dividends—as long as there are enough profits after taxes and other liabilities. However, it’s wise to retain some funds to support future growth and cash flow. 📈
Dividends usually fluctuate based on business performance. Many companies pay dividends at the end of their financial year, and the amount received depends on share ownership and share type.
💼 Can Directors Take a Salary if They Also Receive Dividends?
Yes! Many company directors who are also shareholders take both a salary and dividends, as it can be a tax-efficient way to pay themselves. 📑
It can get a little complex, so we’ve got a separate article that explains directors' salaries in more detail.
🏦 What Are the Tax Implications of Taking a Dividend?
Unlike salaries, dividends aren’t taxed at source, so you’ll need to submit a Self Assessment tax return to pay the correct amount of tax. ✅
Dividends are taxed at different rates from other types of income, but your total annual income determines the exact tax rate. Use our online dividend tax calculator to estimate your tax bill. 💻
📅 Tax-Free Dividend Allowance:
2023/24 (6th April 2023 – 5th April 2024): £1,000 tax-free
2024/25 (6th April 2024 – 5th April 2025): £500 tax-free
📞 Need Help?
At Aequalis Accounting, we offer expert limited company accountancy services from just £150.00 per month. 📊
📲 Call us on 01268 219 330 to chat with our team, or email us at hello@aequalis.tax for expert advice. 🚀