The way they are taxed may be changing, but the other rules and procedures surrounding dividend payments have not. Here is a brief re-cap of the key actions and considerations to bear in mind when making dividend payments:
- There must be distributable reserves in the business that cover the dividend payments. This is company law and must be adhered to. The distributable profits cannot be ascertained simply by checking the financial statements and the Companies Act outlines the necessary adjustments to accounting profit and defines distributable profits.
- The dividend must be declared. Typically this should be done at a meeting held by the directors, but private companies are able to pass an ordinary resolution in writing. Further procedures for declaring dividends may be set out in the company’s Articles of Association.
- Dividend vouchers should be drawn up for every dividend voted containing all the necessary entries. A single voucher can be produced which covers a tax year and it is now possible to produce electronic vouchers. Again, the Articles of Association should be adhered to if any procedures are outlined within them.
- The date of the dividend is important, especially as the taxation is changing. Whether the dividend is final or interim will affect the date of payment and again, the company’s Articles may outline any applicable procedures.
Best practice concerning dividend payments is paramount as, in the event of an enquiry, HMRC can challenge the tax status of payments made.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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