If your limited company makes a dividend declaration, you must record the fact in the company records, and in most cases provide each shareholder with a dividend voucher.
Make sure that the dividend is legal
Your limited company can make a dividend distribution whenever there are sufficient profits in the company accounts to make a legal declaration. If you declare a dividend where there are not sufficient retained profits in the accounts to justify it, then the sum could be declared as ‘illegal‘ by HMRC, categorised as a director’s loan, or even salary (subject to income tax and National Insurance).
Board meeting minutes
Under the terms of the Companies Act 2006, there is no longer a legal requirement to hold a board meeting in order to declare interim dividends. Whether or not you are required to hold a board meeting will depend on the terms of your company Articles of Association.
If your Articles allow it, then directors can have the power to declare interim dividends without the need for a board meeting.
Typically, however, dividends are only payable when declared by an ordinary resolution passed by the company shareholders in general meeting.
You must record the company directors’ decision to distribute a dividend, and produce board meeting minutes to demonstrate this.
The minutes should record the date and location of the meeting, the director’s who were present, the amount of dividends to be paid per share, and the fact that the decision has been made. The meetings should be signed by a director.
You following details must be shown on dividend vouchers to shareholders:
- The net dividend amount
- The notional tax credit (which represents 10% of the total dividend amount).
- The gross dividend amount (the sum you will be taxed on). This will be 10/9 times the net dividend. The difference is the tax credit.
You can provide a single dividend voucher for each tax year, or provide a voucher each time a dividend is declared.
Dividends can be paid to shareholders by cheque, or electronic means. In the latter case, a dividend voucher does not need to be sent if the shareholder agrees.
CTM20095 contains details on the company and tax law which governs dividend declarations.
Check with you accountant before declaring dividends if you are unsure how much retained profit is available to distribute, or how the dividend declaration process should take place for your specific company.