‘Dividends’ are the payments distributed to shareholders of a limited company from the profits made by that company.
When a company makes any kind of profit the money can be used in a number of different ways; It can either be put back into the business in order to help it grow and expand, it can simply be left alone in order to be used later on, or it can be paid out as a dividend to the shareholders. It is not classed as an expense, more of a division of assets among the shareholders.
If a company has not made a profit over a certain amount of time then it cannot pay a dividend. Most larger limited companies will pay a dividend once or twice a year to its share holders as a ‘thank you’ for investing in the company as it is up to the directors of a company to decide when/if they get paid out. Directors of smaller limited companies can pay themselves a dividend as they are usually a shareholder as well, in some cases, the only shareholder of that company.
The benefit of drawing money out of the company in this way is that there will be no additional tax or national insurance to pay on this dividend unless you are a higher rate tax payer; therefore it is very tax efficient.
For more information on dividends and the benefits of taking money from a company in this way, please do not hesitate to phone or email us, or alternatively, you can simply use the live chat link available.
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About The Author
MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.