Estimated reading time: 3 minutes
Introduction
If you run a limited company, you’ll often hear that paying yourself through a combination of salary and dividends can be tax-efficient. While dividends are a common way for company owners to receive income, they are governed by specific company law and tax rules.
Key Points at a Glance
- Dividends can only be paid by limited companies.
- Dividends are paid to shareholders, not simply because someone is a director.
- A company can only pay dividends if it has sufficient profits available.
- Dividends are not a business expense for Corporation Tax purposes.
- Shareholders may need to pay Income Tax on dividend income.
What Are Dividends?
A dividend is a payment made by a limited company to its shareholders from profits available for distribution.
- You must own shares in the company to receive dividends.
- Directors who are not shareholders are not automatically entitled to dividends.
- A company cannot pay dividends without sufficient distributable profits.
Who Can Receive Dividends?
Dividends are paid according to share ownership. For example; if a company distributes £1,000 in dividends a shareholder who holds 50% of the shares will be paid £500 of those dividends. The remaining £500 will be split between the remaining shareholders in line with their shares.
When Can Dividends Be Paid?
Directors should ensure sufficient profits are available before declaring dividends and keep appropriate supporting records.
How Are Dividends Taxed?
Dividends are paid from profits remaining after Corporation Tax. Shareholders may need to pay Income Tax on dividends depending on their circumstances.
Salary or Dividends?
Many directors receive a combination of salary and dividends. The appropriate balance depends on company profits, personal circumstances and current tax legislation.
Keeping Accurate Records Can Include:
- Dividend vouchers.
- Accounting records supporting available profits.
- Board minutes or written decisions where appropriate.
- Records of payments made to shareholders.
How We Can Help
We can advise whether dividends are appropriate, prepare the necessary paperwork, help structure remuneration and ensure your company meets its tax and reporting obligations.
Further Reading (HMRC)
- Taking money out of a limited company – https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company
- Director Information Hub: Dividends – https://www.gov.uk/guidance/director-information-hub-dividends
- Director Information Hub: Self Assessment for Directors – https://www.gov.uk/guidance/director-information-hub-self-assessment-for-directors–2
- Tax on Dividends – https://www.gov.uk/tax-on-dividends/how-to-report-tax-on-dividends
Disclaimer
This article is intended as general guidance only and is based on HMRC and GOV.UK guidance available at the time of writing. Tax legislation and HMRC guidance may change, and individual circumstances differ. Please contact us if you require advice specific to your situation.
Last reviewed: July 2026
