How do I pay myself a dividend from my company

How do I pay myself a dividend from my company

Paying Yourself a Dividend from Your Company - A Step-by-Step Guide

How do I pay myself a dividend from my company? As the owner of a small business, you may be wondering how to pay yourself a dividend from your company. Whether you’re looking to reward yourself for your hard work or just want to access some of the profits in a tax efficient way, paying yourself through dividends can be an attractive option. Here we’ll explain the process step by step so you can start accessing your profits as soon as possible.

Step 1: Calculate Your Dividend Payment

The first step is to decide how much dividend you want to pay yourself. To do this, you will need to review the financials of your business and determine how much profit it has made in the current period. You should also take into account any expenses that may have been incurred since the last dividend payment was declared, such as wages and other costs associated with running your business. Once you’ve determined how much net profit there is available for distribution, simply divide it by the number of shares outstanding and multiply it by the number of shares held by each shareholder (including yourself). This will give you an indication of how much dividend each shareholder will receive.

Note - you can only make a dividend payment when a business is profitable (after tax) as a dividend is a distribution of profit. That means in calculating how much your business can pay out in a dividend, you need to at least have a tax estimate so you don't over distribute. Your accountant should be able to help you with this.

Step 2: Prepare Documentation

Before you can declare and pay out dividends, it’s important that all necessary documentation is prepared in advance. This includes preparing minutes of a meeting detailing the decision to declare and pay out dividends, as well as calculating and preparing payments for each shareholder. If you are the only director and shareholder of your business, this is going to be you having a meeting with yourself! These documents must be signed by all shareholders so make sure all relevant parties are present during preparation!

Step 3: Make Payments

Once all documentation has been prepared, payments can now be made to shareholders in accordance with their shareholding structure. It’s important that all payments are properly recorded in order to comply with HMRC regulations – so make sure all transactions are clearly documented for accounting purposes. Additionally, if any UK tax applies on dividends received (e.g., income tax), HMRC must be informed via a personal tax (self assessment) return – don't forget this crucial step! 

The payment is as simple then as a bank transfer between the company bank account and the shareholder.


Step 4: File Returns

Finally, annual returns must be filed with HMRC and Companies House within strict deadlines - usually nine months after the end of an accounting period or six months after any dividends were paid out (whichever is earlier). If these deadlines are not met then penalties may apply - so make sure everything is completed on time! This is typically done via the submission of annual accounts and corporate tax returns.

Paying yourself a dividend from your company can be an effective way of rewarding yourself without having to pay additional taxes or national insurance contributions on those funds - making it particularly attractive for small business owners in the UK who want access their profits quickly and efficiently. Following these steps should help ensure that everything goes smoothly when declaring and paying out dividends from your business - best of luck!

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.