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Dividends

Dividends are how directors typically extract profits from their limited company once a small salary has been paid. The mechanics aren't complicated, but the rules around distributable profits, paperwork and personal tax catch a lot of directors out. These guides cover how to take dividends correctly, how to plan the optimum mix with salary, and how the personal tax side works.

Jump to 4 guides 5 key facts Annual cycle Reviewed by qualified accountants

Guides

Read our Dividends guides

Plain-English walkthroughs of the most common questions clients ask.

Key facts

The headline figures

£500

Dividend allowance

Tax-free per person, 2025/26

8.75%

Basic-rate tax

On dividends above the allowance, within the basic-rate band

33.75%

Higher-rate tax

On dividends in the higher-rate band

39.35%

Additional-rate tax

On dividends over £125,140

Distributable profits

Paid from

After-tax retained profits only — never from share capital

Annual cycle

Key dates and deadlines

The events you can't afford to miss in a typical year.

  1. Any time during the year

    Board declares dividend

    Directors meet (even if it's a one-director Zoom with themselves) and minute the decision to distribute profits.

  2. Same day

    Dividend voucher issued

    One per shareholder, showing date, amount, and number of shares — the legal paperwork for HMRC and the shareholder's tax return.

  3. Same day

    Payment made

    Bank transfer to the shareholder. The bookkeeping debits the dividends account and credits the bank.

  4. 31 January following year end

    Personal tax on dividends

    The shareholder declares the dividend on their Self-Assessment and pays personal tax due.

Useful resources

Official tools and references

Quick answers

Dividends FAQs

Can I just transfer money from my company to myself whenever I want?
No — at least, not without consequences. Money you take out is either salary (PAYE), an expense reimbursement, a dividend (requires distributable profits + paperwork), or a director's loan (which you'll have to repay or be taxed on). Random transfers without classification can trigger S455 tax and HMRC questions.
What are 'distributable profits' and why do they matter?
Distributable profits = retained earnings after corporation tax, since the company started. You can only legally pay dividends from this pot. Paying out more than you have is an 'illegal dividend' that may need to be paid back, especially if the company later runs into trouble.
Is salary or dividend more tax-efficient?
Usually a low salary (up to the NI threshold) plus dividends for the rest. The salary uses your tax-free personal allowance and qualifies for state pension contributions. Beyond that, dividends are taxed at lower headline rates than salary — but the company has already paid corporation tax on the underlying profit, so the comparison isn't as one-sided as it first looks.
Do I need dividend vouchers?
Yes. Even for a one-person company. A voucher per shareholder per dividend, kept with the company records. Plus board minutes recording the dividend decision. HMRC can ask for these — and lenders / mortgage providers definitely will.
What if the company doesn't have profits — can it still pay a dividend?
No. Paying a dividend with no distributable profits is unlawful. If you've already withdrawn the money, it gets reclassified as a director's loan, with the S455 tax consequences if not repaid within 9 months of year-end.

Need help with dividends?

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