April 1, 2015
Here Clare Rickman from InTouch Accounting answers two of the questions most often asked by limited company contractors, involving the timing, and tax point of dividend declarations.
1) When I declare dividends, when are they actually taxed? At the date they are declared, or when they are paid?
A dividend will be included on your tax return according to the date it was declared, regardless of when it was actually paid. You should keep copies of all vouchers and minutes that support the dividends in order to prove this to HMRC should they ever investigate.
Your accountant should be able to provide you with a template you can use, and then just ensure you send him copies each time for his records.
There are tax planning opportunities here too. If you don’t want to physically pay yourself a dividend at a set point in time, but you have some of your basic rate tax band remaining and the company has sufficient profits, you can declare a dividend with the intention of taking it at a later date. This ensures the dividend falls into a certain tax year and allows you
to fully utilise your tax allowances year on year.
2) How often should I pay myself dividends? I’ve been told that monthly payments might look like disguised salary
You can pay yourself dividends as often as you like, although we generally recommend monthly or quarterly.
As long as you have the correct paperwork in place, being dividend vouchers & minutes, and the company has sufficient profits to cover the distributions then there’s little danger HMRC could argue the dividends were salary.
We do advise clients to keep dividend and salary payments separate, just to provide a clear audit trail. Having clear and concise records makes life a lot easier during an HMRC audit, as not only does it make every item easy to trace but it also provides some degree of reassurance that there’s nothing remiss hidden in the mess!
If you are a limited company shareholder, how do you calculate the personal tax payable on dividends you receive?
A limited company may distribute any retained profit it has made to its shareholders. Board meeting minutes and dividend vouchers must be completed in all cases.