What steps should I take as a Director, when taking dividends from my Limited company?

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As a director of a UK limited company, it is important that you do not take dividends in excess of available profits. Taking too much money out of a business in the form of dividends can result in financial difficulties for your company and can also lead to personal liability for the directors.

How much in dividends can I take?

In order to take dividends, a company must have distributable profits. Distributable profits are the profits of the company that are available for distribution to shareholders in the form of dividends. These profits can be obtained from a variety of sources, including the company’s profits for the current financial year, retained profits from previous years, and capital reserves.

What should I check before taking dividends?

  • Before declaring dividends, as a director, you should review the company’s financial statements to determine the amount of distributable profits available. This would include reviewing the balance sheet, income statement (Profit & Loss), and cash flow statement. These statements will provide information on the company’s assets, liabilities, revenues, expenses, and cash flows, which will help you to determine the company’s overall financial position.
  • It would be a good idea to consult with the company’s accountant or management accountant before declaring dividends. They will be able to give you advice on the amount of distributable profits available and help you to make informed decisions about the amount of dividends are available.
  • When thinking about taking dividends, you should consider what future financial needs that the company may have. For example, if the company is planning to make a large capital expenditure or investment in the near future, you may need to retain a larger portion of profits to fund these projects.

Are there any legal requirements for directors to take dividends?

It is important for directors to follow proper dividend declaration procedures to make sure that dividends are paid in accordance with the law.

Dividends must usually be paid to all shareholders. You must hold a directors meeting to declare the dividend and keep minutes of the meeting, even if you are the only director. A dividend voucher should be issued to each shareholder showing the following:

  • The date
  • Company name
  • Names of shareholders being paid a dividend
  • The amount of the dividend

You must give a copy of the voucher to everyone who receives a dividend and keep a copy for your company’s records. You must record the payment in the company’s financial records, and file the necessary tax returns.

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05.09.2023

“Any advice relating to accounts or tax should be sought from your tax accountant. Sage Accounts Solutions Limited will not be held responsible for any loss or damage caused as a result of the information contained herein”

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