What is an unlawful dividend?

Dividends are unlawful when insufficient profits exist within the company to cover the amounts paid. Rules regarding the payment of dividends are laid down in the Companies Act, 2006 which states, “a dividend or distribution to shareholders may only be made out of profits available for the purpose.”

Can you backdate a dividend declaration?

It should be noted that it is unlawful to backdate a dividend. However if a meeting was held at the time, it is normal to type up and print out the minutes and vouchers after the dividend was declared.

Does a dividend voucher need to be signed?

This voucher should be kept in a safe place. By law, the limited company must keep a record of the dividend declaration via board meeting minutes, signed by an officer of the company (a chairman, or sole director). Here is a template of a standard board meeting minute template, which you are welcome to use.

How does HMRC know about dividends?

You need to let HMRC know how much dividend income you have received via the annual self-assessment process, if the total is greated than £10,000, or otherwise advise in writing. A £2,000 dividend allowance is also provided, which means the first £2,000 of dividends is not taxable.

What happens if you take more dividends than profit?

Company law dictates that, if a contractor has withdrawn a dividend that exceeds their company profits, the overpaid dividends need to be treated as a loan to the shareholders, which must be repaid.

Can I take dividends from previous years profits?

Dividends can only be paid on profits made by a company that year, or undistributed profits from previous years. However, salaries can be paid even when a company is making a loss.

What should a dividend voucher look like?

A dividend voucher should include the following information: Name and address of shareholder receiving the dividend. Name and registered office address of the limited company issuing the dividend. Date of issue.

How are dividends reported in a company’s accounts?

Commonly asked questions around dividend and its disclosures in the accounts. A dividend is a payment made by the company to its shareholders, usually as a distribution of profits. Part 23 The Companies Act 2006 (section 829 to 853) details all the provisions for distributions made by the company.

Can a director take a dividend out of a company?

Directors who are normally also shareholders in a small company need to be careful if they are taking regular dividend out of the company. They need to make sure that they have last annual accounts or interim accounts which support the distribution. What are ‘profits available for distribution’?

When does a company have to pay a dividend?

Under sections 836 and 838 Companies Act 2006, a company can only pay a dividend out of distributable profits as shown by relevant accounts. These will be the last annual accounts circulated to members, or, if those accounts do not show sufficient distributable profits to justify the dividend, “interim accounts” showing adequate reserves.

Why are dividends unlawful under the Companies Act?

The procedural rules on dividends under the Companies Act are strict, and, if the dividend is justified by reference to interim accounts which have not been filed prior to the dividend being paid, the dividend will be unlawful; this is the case even if there is significant headroom in the distributable profit position.

When do you not have to pay a dividend?

If the available profits are not sufficient to cover the proposed dividend, then that dividend must not be declared or paid. 2. Dividends must be justified by reference to accounts. The directors need to have a set of accounts that show there are sufficient distributable profits. The accounts must be either: The company’s last annual accounts;

How are dividends declared in a close company?

Antrabus Ltd is a close company and the directors are empowered to declare dividends. They decide it would be beneficial to extract money quarterly, as dividends, and to make journal adjustments to directors’ loan accounts to reflect quarterly interim dividends.