Director information hub: Dividends

Dividends are payments made to shareholders from company profits after Corporation Tax.

In many small companies, the main shareholder or shareholders are also the directors. You must follow the rules.

A dividend is considered illegal when a company pays out more than its available profits or fails to follow correct procedures.

Before any dividends can be paid out, they must be declared and recorded formally.

They can be paid out at any time of the year.

You can only take dividends from retained company profits.

Every shareholder that receives a dividend from a company may need to declare the amount to HMRC.

If you are a director and a shareholder of a company, you may receive dividends as part of your overall remuneration.

Dividends from the company should only be paid from available profits. If dividends are paid to you when the company does not have sufficient profits to support them, they will usually be treated as a director’s loan and must be repaid.

Before taking or paying dividends, you should consider obtaining professional advice to ensure the payment is lawful and appropriate.

If a company later becomes insolvent, paying unlawful dividends can have serious consequences. These include:

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