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  3. What should I consider before paying a dividend?
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  3. What should I consider before paying a dividend?

What should I consider before paying a dividend?

If you are a company director, then you have a legal duty to protect the company’s assets and to carefully consider whether you have sufficient funds to pay its liabilities (for example, upcoming VAT and corporation tax payments) before a dividend can be paid.

You should also consider:

Do I have sufficient retained profits to pay a dividend?

“A dividend or distribution to shareholders may only be made out of profits available for the purpose.”

Therefore, dividends can only be paid out of prior period retained profits +current period’s retained profits (after providing for corporation tax and current dividends already paid in the current year).

What paperwork should I need to keep when I pay a dividend?

Even a sole director, you should keep minutes from meetings where you confirm the amount of dividends taken.

Also shareholders should receive a tax voucher -as a receipt for tax purposes. It should show the dividend rate per share and dividend figure.

Updated on 8th June 2023

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