Can I pay a dividend?

Business Tax

Can I pay a dividend?

A company can only pay a dividend to its shareholders if there is enough profit available to cover it.

To pay a final dividend you should have relevant accounts to support there being sufficient retained profits. This would be the latest annual accounts, or where there are insufficient profits in those accounts, interim accounts.

Interim dividends can be paid throughout the year providing interim accounts have been prepared or the directors are reasonably satisfied that there are the reserves to do so.

Additionally, there is a legal requirement that capital is maintained and so losses since those accounts should be reviewed and consideration given to the ability of the company to meet its debts as they fall due in the future.

You must also make sure that a Director’s meeting is held to consider the relevant accounts and declare a dividend. Minutes of the meeting must be kept, even if there is only one director. Dividend vouchers should be prepared at the time the dividend is declared or paid. You can download our template voucher HERE.

If shareholders receive a dividend from the company, knowing at the time there were insufficient reserves, then they are liable to repay the illegal portion.

If you can demonstrate that there were enough profits to cover the dividend at the time it was declared, and losses are made later in the year, the liability to repay would not normally arise.

 

Where there is one shareholder owning all shares in the share class, there does not need to be an equal dividend to each shareholder/class. However, where there is more than one shareholder invested in a share class, the dividend should be in proportion to their percentage holding in that share class e.g. where there are 100 ordinary shares held by 2 shareholders, one with 70 shares and one with 30 shares, and the dividend payable is £10,000, the split would be:

 

  No. of shares Dividend
Shareholder A 70 £7,000
Shareholder B 30 £3,000
 

Total

 

100

 

£10,000

 

If you have any questions please contact the office on 0161 236 7677.