Paying self a dividend as a limited company

dixie_dean_2

Hi

We're gonna pay ourselves a dividend 4 times a year and have a few questions. Basically me and a friend run a ltd company as directors with equal shareholdings. I work full time and he did too until August, since when he has been a full time father.

1) I know we need to show minutes for meetings when the dividends were decided but do we also need to provide a dividend report and/or issue dividend vouchers?

2) Am I missing anything with regards "retained profits"? Dont want to fall foul of this but basically we are yet to take anything from the company so all the money we have is retained profits as far as I'm aware?

3) From looking into it we won't pay tax on this income but is that definitely the case for my colleague who does not currently pay tax elsewhere?

4) The minutes template I'm using makes a lot of mention of dates, eg "The accounts for the period ending 31 December 2009 were tabled and it was noted that these accounts showed that there were sufficient distributable profits" and
It was resolved that an interim dividend of [DIVIDENT AMOUNT] per [SHARE VALUE AND CLASS] shares in respect of the year ended [DATE], be declared on the [SHARE CLASS] shares and payable on [DATE], to [SHARE CLASS] shareholders registered at the close of business on [DATE].

If our tax year starts in September and I want to pay a dividend now for the first quarter, what dates would it be best to use?

I think that's it for now though sure more will crop up. Sorry for long post and thanks in advance if anyone can help.

Cheers
Bob

bengalknights

dixie_dean wrote: »

Hi

We're gonna pay ourselves a dividend 4 times a year and have a few questions. Basically me and a friend run a ltd company as directors with equal shareholdings. I work full time and he did too until August, since when he has been a full time father.

1) I know we need to show minutes for meetings when the dividends were decided but do we also need to provide a dividend report and/or issue dividend vouchers? Yes

2) Am I missing anything with regards "retained profits"? Dont want to fall foul of this but basically we are yet to take anything from the company so all the money we have is retained profits as far as I'm aware? No the retained profits can be issued as dividends

3) From looking into it we won't pay tax on this income but is that definitely the case for my colleague who does not currently pay tax elsewhere? This would be for your self assesment form where the decision would be made

4) The minutes template I'm using makes a lot of mention of dates, eg "The accounts for the period ending 31 December 2009 were tabled and it was noted that these accounts showed that there were sufficient distributable profits" and
It was resolved that an interim dividend of [DIVIDENT AMOUNT] per [SHARE VALUE AND CLASS] shares in respect of the year ended [DATE], be declared on the [SHARE CLASS] shares and payable on [DATE], to [SHARE CLASS] shareholders registered at the close of business on [DATE].

If our tax year starts in September and I want to pay a dividend now for the first quarter, what dates would it be best to use? January if paying next month or december if this month

I think that's it for now though sure more will crop up. Sorry for long post and thanks in advance if anyone can help.

Cheers
Bob

See above for reply

dixie_dean_2

1) I know we need to show minutes for meetings when the dividends were decided but do we also need to provide a dividend report and/or issue dividend vouchers? Yes

So both of these, even though we 2 directors are the only shareholders? If so, is this a precise, important legal document or am I ok to use an online template and complete as best i can?

2) Am I missing anything with regards "retained profits"? Dont want to fall foul of this but basically we are yet to take anything from the company so all the money we have is retained profits as far as I'm aware? No the retained profits can be issued as dividends

I think you misunderstand. we intend to pay the dividends from the retained profits, I'm just trying to acsertain exactly what retained profit is!

3) From looking into it we won't pay tax on this income but is that definitely the case for my colleague who does not currently pay tax elsewhere? This would be for your self assesment form where the decision would be made

Right, but if i'm going to be hit by a tax bill i'd need to know so I can set some aside. Can I find out?

4) The minutes template I'm using makes a lot of mention of dates, eg "The accounts for the period ending 31 December 2009 were tabled and it was noted that these accounts showed that there were sufficient distributable profits" and
It was resolved that an interim dividend of [DIVIDENT AMOUNT] per [SHARE VALUE AND CLASS] shares in respect of the year ended [DATE], be declared on the [SHARE CLASS] shares and payable on [DATE], to [SHARE CLASS] shareholders registered at the close of business on [DATE].

If our tax year starts in September and I want to pay a dividend now for the first quarter, what dates would it be best to use? January if paying next month or december if this month

Brilliant, thanks

notanewuser

Our accountant deals with all of this for us. Why isn't yours?

dixie_dean_2

Our turnover is pretty low so we're only paying for a very basic "package" with them. How much do you pay for them doing all this stuff?

notanewuser

dixie_dean wrote: »

Our turnover is pretty low so we're only paying for a very basic "package" with them. How much do you pay for them doing all this stuff?

£1k + vat per annum (turnover is around £80k per annum excl vat).

dixie_dean_2

We're paying around a third of that with a turnover less than an eighth.

MoneySavingUser

dixie_dean wrote: »

Hi

We're gonna pay ourselves a dividend 4 times a year and have a few questions. Basically me and a friend run a ltd company as directors with equal shareholdings. I work full time and he did too until August, since when he has been a full time father.

1) I know we need to show minutes for meetings when the dividends were decided but do we also need to provide a dividend report and/or issue dividend vouchers?

2) Am I missing anything with regards "retained profits"? Dont want to fall foul of this but basically we are yet to take anything from the company so all the money we have is retained profits as far as I'm aware?

3) From looking into it we won't pay tax on this income but is that definitely the case for my colleague who does not currently pay tax elsewhere?

4) The minutes template I'm using makes a lot of mention of dates, eg "The accounts for the period ending 31 December 2009 were tabled and it was noted that these accounts showed that there were sufficient distributable profits" and
It was resolved that an interim dividend of [DIVIDENT AMOUNT] per [SHARE VALUE AND CLASS] shares in respect of the year ended [DATE], be declared on the [SHARE CLASS] shares and payable on [DATE], to [SHARE CLASS] shareholders registered at the close of business on [DATE].

If our tax year starts in September and I want to pay a dividend now for the first quarter, what dates would it be best to use?

I think that's it for now though sure more will crop up. Sorry for long post and thanks in advance if anyone can help.

Cheers
Bob

1) Yes you need to issue dividend vouchers - it needs to show certain things like amount, date declared etc. a standard template should be ok

2) Retained profits is basically the profits for the business cumulatively

i.e.

year 1
turnover: 1000
expenses: 500
profit: 500
dividends: 200
retained profits left 300

year 2
turnover: 1000
expenses: 500
profit: 500
dividends: 200
retained profit for year 2: 300
total retained profits 600 (year 1 + year 2)
so in each year you can pay dividends out of profit for the year plus any balance from prior years

BUT profit is not the same as cash and you need to keep cash in the business for working capital and paying corporation tax

3) For dividends up to the basic rate band limit the amount of tax on dividends is 10% but you also get a 10% tax credit which cancels it out so no tax to pay

after the basic rate band finishes you have to pay tax

The company will need to pay corporation tax - dividends are not an allowable deduction for corporation tax purposes

4) Your tax year does not start in September - the concept of basis periods does not apply to directors/companies

you need to pay corporation tax by 9 months and 1 day after your year end

You need to pay income tax by 31st January for the year to the previous 5th April

i.e. to 5th April 2013 - Income tax due by 31st January 2014

5) Look at this http://www.cheaperaccountant.co.uk/blog.php

6) Get an accountant

dixie_dean_2

Hi

Thats REALLY helpful, thanks for your time. We used cheaperaccountant or similar for year 1 but decided to go with a local firm and pay a bit more for year 2 as made a lot more money, had a lot more questions and weren't overly convinced by the online firm.

Cool re retained income and the dividend tax question, that's pretty much what I thought.

The date questions more applied to the minutes and the allocation of dividends. I'm ok with when the accounts need doing and tax paying.

Thanks again. I might ask the accountant to prepare the dividend vouchers and see what she says!

Ta,
Bob

MoneySavingUser

I wasn't suggesting using cheaper accounting - I was just saying read their blog as it has lots of information about dividends, paying money out of limited companies etc.

you might also find this forum useful: http://www.ukbusinessforums.co.uk/forums/forumdisplay.php?f=55

suzanne202

In my experience it's best to use an actual accountant. Someone who you can lift the phone and talk to if you have an issue or (hopefully not) a VAT inspection.

They are worth paying the extra few pounds for.