Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • bluelycra
    • By bluelycra 5th Jan 18, 4:09 PM
    • 1Posts
    • 0Thanks
    bluelycra
    Dividends greater than current year profit
    • #1
    • 5th Jan 18, 4:09 PM
    Dividends greater than current year profit 5th Jan 18 at 4:09 PM
    Hi,

    i am a newbie, with a relatively new small business just over a year old.

    i am confused about the amount of dividend we can withdraw. i am also scared of illegal dividends.

    should it be less than the current year profit, or can it be more than current year profit, so long as there is retained profit from last year?

    as an example:

    we made a profit of 50k last year, from which we paid ourselves 25k via dividends.

    there was 25k left in the bank from last year.

    this year our profit to date is only 5k, but we need to take out around 10k for an emergency need.

    cash requirement for the business is less than 2k on a monthly basis.

    can we take out 10k in dividends?
Page 1
    • Pennywise
    • By Pennywise 5th Jan 18, 4:25 PM
    • 10,232 Posts
    • 19,051 Thanks
    Pennywise
    • #2
    • 5th Jan 18, 4:25 PM
    • #2
    • 5th Jan 18, 4:25 PM
    You need cumulative retained post tax profits. I.e. that's profits (as per accounting standards definition), less corporation tax due on those profits, less dividends previously paid, all cumulative from the start of the business. Cash in bank isn't a suitable indicator of profit nor availability of dividends, you have to factor in all other assets and liabilities, including unpaid bills, tax etc. To do that, you need a proper set of accounts which will give you the figure. If in doubt, ask your accountant to confirm whether you can take that sum or not.
    • antrobus
    • By antrobus 5th Jan 18, 6:02 PM
    • 15,680 Posts
    • 22,336 Thanks
    antrobus
    • #3
    • 5th Jan 18, 6:02 PM
    • #3
    • 5th Jan 18, 6:02 PM
    This is what you need to know;

    Dividends are unlawful when insufficient profits exist within the company to cover the amounts paid. Rules regarding the payment of dividends are laid down in the Companies Act, 2006 which states, !!!8220;a dividend or distribution to shareholders may only be made out of profits available for the purpose.

    https://www.begbies-traynorgroup.com/articles/director-advice/unlawful-dividends
    • 00ec25
    • By 00ec25 5th Jan 18, 7:30 PM
    • 6,517 Posts
    • 6,078 Thanks
    00ec25
    • #4
    • 5th Jan 18, 7:30 PM
    • #4
    • 5th Jan 18, 7:30 PM
    we made a profit of 50k last year, before or after corporation tax had been paid on the profit ?from which we paid ourselves 25k via dividends.

    there was 25k left in the bank from last year. irrelevant

    this year our profit to date is only 5k, so you will have some tax to pay on it (19%) but we need to take out around 10k for an emergency need.

    cash requirement for the business is less than 2k on a monthly basis. irrelevant

    can we take out 10k in dividends? probably, yes
    Originally posted by bluelycra
    bearing in mind the correct answer is the one given by pennywise ie. ask your accountant for the proper figure,

    the answer to your question in principle is the 10K would come of out your 50k + 5k - 25k - Corp tax = ? = distributable profits from which you wish to take 10k
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,615Posts Today

8,050Users online

Martin's Twitter
  • Ah these care free days of watching #ENG score 5 goals in the first half of a World Cup match. It reminds me of... Never.

  • Then it should be. It's not some accident. It's deliberate grappling https://t.co/UxVTuUSNio

  • Penalty yes but time someone was sent off for these wrestling moves #WorldCup

  • Follow Martin