D is for Dividends - A to Z Accountancy Top Tips
If you are a shareholder of your own company, you may be able to extract profits as dividends.
A dividend is a payment a company can make to shareholders if it has made a profit and has enough reserves.
To pay a dividend you must hold a meeting declaring that you are going to pay a dividend and document this, even if it is just you.
Dividends are different from salary and they are not business costs to reduce your Corporation Tax.
In the tax year 2021 to 2022 the tax free dividend allowance is £2,000. This means you can receive £2,000 of dividends tax free regardless of any other income you earn.
If you earn more than £2,000 in dividends, then the tax rate will depend on the level of other income you earn. Dividends taxed in the basic rate are at 7.5% and in the higher rate are 32.5%.
Are you are a director and shareholder of your own company?
If you are a director and shareholder of your own company then it is often tax efficient to take a low salary and then dividends but this is will depend on any other incomes you have.
However please be aware you can only take dividends out of a company if you have the reserves to do so and if you take out more than you are allowed this may mean paying excess tax.
If you are unsure on if you can take dividends from your company then please get in touch to discuss.
Thank you for reading this weeks blog – D is for Dividends, see you next week.