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If your business is set up as a limited company, paying yourself dividends alongside a salary is usually the most tax efficient way to draw money out. To help you manage the legal requirements of paying yourself from your business, we’ll explain how often you can take dividends, and what the process is for paying them.
 

What is a dividend?

How much can my company pay as a dividend?

When can my company pay a dividend?

How does tax work on dividends?

Dividends are payments which a company makes to its shareholders out of its profits. These profits are essentially what is left over in the business once all taxes, expenses and liabilities have been paid. Also called ‘retained profit’, this left over money may accumulate over time. Watch our short video below about paying yourself from your limited company using dividends. We know it can be confusing, so get an instant quote online if you need more help!

 

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Mrs Isebel Vorster
Mrs Isebel Vorster
8th February 2022 8:27 pm

Thanks for the very helpful information free of charge!

Achilles .
Achilles .
8th April 2022 11:18 am

That is very useful, thanks so much! Is there an online calculator , that you suggest, and you can put salary and dividends figures so it can calculate for you the tax that you should reserve/ pay?

Lauren
Lauren
29th May 2022 9:15 pm

If you’re a director of two different companies, do you get 2 x the £2000 directors dividend allowance? So £4000? Any advice would be really appreciated!

Elizabeth Hughes
Admin
Elizabeth Hughes
30th May 2022 9:11 am
Reply to  Lauren

Hi Lauren

Thanks for your question! The allowance is a total allowance for the year, rather than for each directorship unfortunately, so you’ll only have the £2,000 dividend allowance once in a tax year. I hope this helps, but let us know if you have any questions at all!

Best wishes

Elizabeth

Joshua Midgley
Joshua Midgley
25th August 2022 3:07 pm

Hi Elizabeth,

Me, my mum and sister have inherited my father’s business and we are considering going Ltd. If mum is the owner and me and my sister are directors do we all get the tax relief on the first £2000 dividend and £11,900 salary.. if we pay all 3 of us the same?

Kindest regards

Joshua Midgley

Elizabeth Hughes
Admin
Elizabeth Hughes
31st August 2022 4:59 pm
Reply to  Joshua Midgley

Hi Joshua Thank you for your message. Yes you’re right, the dividend allowance is based on the individual, so you each get your own £2,000 dividend allowance, and can benefit from each taking a tax-efficient salary (this article explains how it works in a bit more detail than our one about dividends). Based on what you said about your Mum owning the company and you and your sister being directors though, it’s worth noting that: Only shareholders receive dividends. Directors only get dividends if they are also shareholders. Only directors can take a director’s salary. Shareholders don’t take a salary… Read more »

Mike
Mike
3rd October 2022 3:31 pm

Excellent website with lots of helpful information. Just checking, if the owner/director wants to take money from his ltd, he must first pay corporate tax 19% (as an ltd) and then dividend tax (as a shareholder)? If it does not show a profit (ie it shows expenses), it should not pay a dividend. Corporate tax is the biggest difference compared to moonlighting because with a £9100 salary he doesn’t pay tax or NIC. And another question that is not directly related. If an individual has a dividend from the US, he pays 15% withholding tax. Does the ltd (as an… Read more »

Elizabeth Hughes
Admin
Elizabeth Hughes
6th October 2022 3:05 pm
Reply to  Mike

Hi Mike Thanks for your kind words! You’re right, you must pay any Corporation Tax before taking dividends, but you could also take a salary which would reduce the Corporation Tax. Any dividends are then taken from Profits after tax. If there are no profits, correct there are no dividends available. So, withholding tax is taken from the individual or company, and the entity taking it off would pay this on their behalf. The entity would then not pay this again, as it is not their tax. If there is a Double Taxation Agreement in place between the UK and… Read more »

Jimmy D.
Jimmy D.
10th October 2022 3:27 pm

Ive got a couple of questions if that’s ok? I’ve recently formed a company with a friend of mine, we’re both directors. As I’ll be working full time and he won’t be working for the company much at all, we’ve agreed that paying me, but not him for mow, makes sense. It’s a property development company, so our profit will most likely come in chunks at the end of projects (as opposed to monthly sales or whatever). We think it makes sense to pay me a basic salary of £9,100 a year (which we read somewhere on this site is… Read more »

Elizabeth Hughes
Admin
Elizabeth Hughes
12th October 2022 9:07 am
Reply to  Jimmy D.

Hi James Thanks very much for getting in touch – yes, ask away! So, congratulations on your new company. First things first – a company director is different to a shareholder, but you can be both those things at the same time. A director can take a salary from the company, and this is paid through payroll (like an employee). The company can claim tax relief on the salary (so can offset it against the company tax bill). Taking a salary up to the optimum amount is more tax efficient, because that way you won’t be paying tax twice (as… Read more »

Lance
Lance
14th November 2022 3:52 pm

Many thanks for this vital information … and free-of-charge too. Although we are a very small start up company, should we grow to the point where we need an accountancy firm, we will most certainly select The Accountancy to do the more complicated work for us.

Elizabeth Hughes
Admin
Elizabeth Hughes
15th November 2022 3:56 pm
Reply to  Lance

That’s lovely to hear, thank you Lance! Very best of luck with everything – let us know if there’s anything we can do to help.

Best wishes

Elizabeth

Ali Orr
Ali Orr
15th November 2022 12:54 pm

Great article. If a company is 50/50 split is it possible for one director to take dividends and the other to choose not to?

Elizabeth Hughes
Admin
Elizabeth Hughes
15th November 2022 4:10 pm
Reply to  Ali Orr

Hi Ali, Thanks very much for your message – and for your feedback! OK, so a company director is different to a shareholder, but you can be both those things at the same time. Directors can take a salary from the company This is paid through payroll (like it is for an employee). The company can claim tax relief on the salary, and offset it against the company tax bill. Taking a salary at the optimum amount is more tax efficient, because that way you won’t be paying tax twice (as an employer through your company, and as an employee… Read more »

Razvan Banica
Razvan Banica
12th January 2023 1:46 pm

Hi, Makes it a little bit clearer now although I do have need to clarify something please. We are a limited company that operates in the surveying field and we have set contracts for the year with different clients around the UK. Most of our expenses are being charged back to our customers (mileage, overnight accommodation etc), so we know what out minimum income for the roughly is. To be more tax efficient we will have a smaller salary and top up our income by taking out dividends so my question is can we take dividends out monthly or these… Read more »

Elizabeth Hughes
Admin
Elizabeth Hughes
19th January 2023 11:53 am
Reply to  Razvan Banica

Hi Razvan, Thanks for your message. There aren’t (technically) any restrictions on how often your company pays dividends, but a it is important to remember that dividends can only be paid out of the company’s after-tax profits, and that there’s enough money left in the business to protect its cashflow. Taking dividends very frequently makes it a bit harder to do this, and might also affect how tax efficient you are. For instance, if you take a large amount of dividends one year, and then the following year is a bit quieter and you don’t, you might push yourself over… Read more »

jacquie
jacquie
12th January 2023 8:11 pm

Hi, I am Director & only shareholder of my ltd co which has not traded this year but has retained profits from earlier years. I have small income from carers allowance (looking after elderly parent) – my question, is it OK to pay myself dividends from those retained profits this year, up to 2k over personal allowance (less the benefit income) and not have to pay tax (given personal allowance is tax free & 2k is tax-free anyway)?
Or would it be up to personal allowance only that is tax free?
Thanks!

Elizabeth Hughes
Admin
Elizabeth Hughes
30th January 2023 9:26 am
Reply to  jacquie

Hi Jacquie Thanks for your message! Yes, you can pay dividends from retained profits, and you can also claim both the personal allowance and the dividend allowance in the same year. This article about dividend tax explains it in a bit more detail if that’s useful. On a side note, the timing of this is quite important! The dividend allowance for the 2022/23 tax year is £2,000, but this reduces to £1,000 in April when the 2023/24 tax year starts. I hope this helps, but please do let us know if there’s anything at all we can do for you!… Read more »

Lee
Lee
22nd January 2023 5:34 pm

Hi, great website and very helpful introductory information. Just a quick question if possible. Are you able to leave all declared profits after Corporation Tax has been paid in the Ltd company to carry over in subsequent years, and then draw dividends in (say for example) years two and three? Would this still be possible if the Ltd company makes no profit in one particular year, but you simply draw dividends made from profit from previous years?
Many thanks

Elizabeth Hughes
Admin
Elizabeth Hughes
30th January 2023 9:33 am
Reply to  Lee

Hi Lee

Thanks so much for your feedback! Yes, that’s absolutely possible, and it can actually be a tax-efficient way to spread out your dividends. For instance, rather than taking a £60k dividend one year (which would put you into the higher rate tax category) and none the next, you could take £30k of dividends each year, and this would be under the higher rate tax threshold.

I hope this helps, but please do let us know if there’s anything at all we can do for you.

Best wishes

Elizabeth

Lauren
Lauren
25th January 2023 11:47 pm

My husband has his own decorating company x he gets taxed at the source by sun contractors , then he gets taxed again when he’s take money from his business as the company director. Is it correct that he should be taxed twice on the same money

Elizabeth Hughes
Admin
Elizabeth Hughes
30th January 2023 9:43 am
Reply to  Lauren

Hi Lauren

Thanks very much for the message. It sounds like the contracting company make CIS deductions, in which case he can request a refund for CIS deducted. This can be done online or by post. HMRC’s website goes into more detail about the process, but do let us know if there’s anything we can do to help!

Best wishes

Elizabeth

Russ
Russ
14th February 2023 11:04 am

Hi Can you help on this? Are two directors allowed to take different dividends – I am a higher rate taxpayer because of other income and my wife is the only other director and a lower rate payer – it is more tax efficient for her to take the dividend – is this acceptable? Thank you

Elizabeth Hughes
Admin
Elizabeth Hughes
16th February 2023 3:07 pm
Reply to  Russ

Hi Russ

Thanks for your message. Yes, if both of those directors are shareholders, then they can take dividends. To pay dividends at different amounts, you can set up different types of shares. This article goes into it in a bit more detail, but please do let us know if you need any help!

Best wishes

Elizabeth

Lindsey
Lindsey
14th April 2023 5:35 pm

Hi, agree this is an excellent website :). I wonder if you could help with a query I have? I have a second property that I bought through a limited company with the intent to let out as a holiday cottage but have run into planning permission issues. I am therefore looking to let my primary home and move into this property for the next couple of years. I know I will need to pay market rent so it is not seen as a BIK. My question is if there are no profits (as all funds in the account are… Read more »

Elizabeth Hughes
Admin
Elizabeth Hughes
20th April 2023 10:47 am
Reply to  Lindsey

Hi Lindsey Thanks so much for your lovely feedback. As a sole director you can usually pay yourself a salary from the business, and then as a shareholder you can receive dividends from the company profits. Our article about taking the most tax-efficient director’s salary goes into more detail about how this works (and gives examples of salaries). Essentially if we run a payroll then you’ll pay the tax at source, but it helps to think of things separately here. So, the company is likely best to pay dividends once it makes enough profit to sustain you, and then you… Read more »

Ross
Ross
9th August 2023 4:18 pm

Hi, great article! I have just started a limited company with myself and my wife (Shares split 51/49) I am a director and she is a shareholder.
We both work so are not taking anything out of the business in the first six months for ourselves as we would like to progress it first, when we eventually look at paying ourselves dividends would we still get the £1,000 tax free even if working jobs elsewhere (paying tax)?

Elizabeth Hughes
Admin
Elizabeth Hughes
15th August 2023 9:48 am
Reply to  Ross

Hi Ross

Thanks for your kind words! Yes, the tax-free dividend allowance is available against your dividend income even if you have another source of income too. For the 2023/24 tax year the allowance is £1,000, but this will reduce to £500 in the 2024/25 tax year.

I hope this helps, but let us know if there’s anything at all we can do for you. In the meantime, best of luck with the new venture!

Best wishes

Elizabeth

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