If you own shares in a company, you have probably received a dividend payment. This is a portion of company profit, distributed as a cash payment or stock reinvestment. (The latter option uses the dividend amount to increase your shareholding in that company.)

You may be a shareholder in your own limited company or could own shares of another company (via investment or a profit-sharing scheme, for example).

Calculating dividend payments

A limited company can only issue dividend payments if it has made a profit. Shareholders are usually paid via an allocated amount per share. Therefore, the payment received may vary between recipients, reflecting the number of shares owned by each person.

Managing dividend payments

Dividend payment decisions must be formally declared at a directors’ meeting. Even if you are the sole shareholder of your limited company (one share is the minimum number), you must still generate and keep minutes of the meeting.

In addition, each person receiving a dividend payment must be provided with a dividend voucher containing:

• dividend issue date,
• company name and registration number,
• shareholder names (who are receiving a dividend), and
• dividend amount.

The dividend voucher must be signed by the authorising officer.

Importantly, dividend payments cannot be allocated as business costs when calculating corporation tax.

How dividend income is taxed

The tax liability of dividend payments lies with the individual recipient (not the limited company). Each person can currently receive an annual tax-free dividend allowance of £500 (tax year 2024/25).

Dividend earnings above £500 per annum are taxable, with the applicable rate determined by your income tax band. The current tax rates on dividends above the dividend allowance are:

• 8.75% basic rate
• 33.75% higher rate
• 39.35% additional rate

If your dividend income exceeds the annual allowance (currently £500) and is less than £10,000, HMRC adjusts your tax code (for wages and pensions) or you include the amount involved within your Self Assessment tax return.

Everyone receiving annual dividend payments of over £10,000 must complete a Self Assessment tax return.

Do you own a limited company?

Would you like to know more about dividend payments?

Talk to the friendly team at Spicer & Co Chartered Accountants in Dunstable. We’re here to answer your queries and keep you – and your limited company – tax efficient and compliant.