Guide to Limited Company Dividends

In a Nutshell

Cash

In a Sentence

Limited company dividends are the profit a company makes, after tax has been paid, that are paid to the companies registered shareholders.

Dividends are why trading through your own limited company is the most cost effective route for contractors who are not caught by IR35 legislation. Less tax is paid on dividends compared to salary.

It is common for contractors to pay themselves a small salary and make up the rest of their income via dividend payment(s). Usually contractors are the only shareholder, so they get all of the dividend paid by the company.

Working Out a Limited Company Dividend

Dividends are paid out after all other limited company bills are paid. Start with the limited company's gross turnover (income) and take away all outgoings. This will include;

• Accountancy fees
• Your salary
• Limited company expenses such as equipment
• Any other costs paid by your limited company
• Tax bills for staff
• Limited Company Corporation Tax

The balance of money you are left with can be paid out to the shareholder(s) as a dividend.

Record Keeping - Limited Company Dividends

The payment of limited company dividends has to be recorded as a formal board minute(s). It is usual for your contractor accountant to do this on your behalf.

The formal paperwork for limited company dividends is called a ‘dividend voucher'. There needs to be a dividend voucher for each of the limited company's shareholders, for each dividend.

When to Pay Out a Dividend

There is no set time frame for a limited company to pay out a dividend. It can be done whenever the director choses. Once a year or once a month, though the contracting industry norm seems to be once a quarter - every three months.

Limited company dividends cannot be paid out on the basis of expected future profits. Dividends can only be paid out on actual amounts of money in the limited company bank account.