In the past few weeks, I’ve met a number of new business owners who want to know how often they can take dividends from their business. And how are they taxed?
This is a common question – so common that we asked Billie to record a video on it a couple of years ago.
Most limited company owners are interested in keeping their tax as low as possible. The timing of the dividend declaration is a very important part of this strategy.
When I declare dividends, are they taxed at the date they are declared or when they are actually paid?
They actually are not taxed at either point! A dividend will be included on your tax return according to the date that it was declared and became payable, regardless of the date that it was actually paid.
For example, if you declared a dividend on 1 April 2025, payable on 7 April 2025, this will be included as income in your 2025/26 tax year because 7 April is in that year. If for any reason the dividend was paid on 4 April, then it would be regarded as a loan until 7 April. It wouldn’t change the tax year of the dividend.
You should keep all the copies of the dividend vouchers and minutes that support the dividend just in case HMRC investigate – you’ll have something for proof. Your accountant may be able to provide you with a template to use, or complete them for you.
For tax planning opportunities, you can declare a dividend immediately payable with the intention of taking the cash at a later date. You can do this if you don’t want to pay yourself a dividend at a set point in time, but you have some of your basic rate tax band remaining and the company has sufficient profits. This will ensure that the dividend falls into an earlier tax year and then will allow you to fully utilise your tax allowances.
Currently, you can receive £500 of dividends tax-free each year and, therefore, it is advantageous to take at least £500 in the tax year, no matter what tax rate band you fall into.
How often should I pay myself dividends?
We recommend paying yourself dividend monthly or quarterly, although you can actually pay yourself whenever you like.
Having all the correct paper work, including the dividend vouchers and the minutes, and proof that the company has sufficient profits to cover the distributions means you are safe from HMRC arguing that the dividends are a salary. You don’t want HMRC to think that your dividends are a salary as this won’t be tax efficient to you.
Overall, there are advantages to paying yourself dividends such as them being tax-free up to £500. As long as your business has the available profits to issue dividends, you can pay yourself dividends whenever you want.
If you have any questions, please email su*****@*********************co.uk or give us a ring on 0151 380 8099.
Many thanks
Jon