when can I take dividends from my UK company

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Introduction 

If you run your own contractor company, you may wonder when can I take dividends from my company? In addition, you may ask how often I can take dividends from my UK company. There are various considerations if one asks when you can take dividends (also called distributions). Indeed, when taking dividends from your company, you should consider how dividends work (UK). Also, when should you pay yourself if we consider UK limited company contractor dividends or salary? Moreover, if we compare limited company dividends vs salary (UK), you’ll likely take your income as a combination of salary and dividends (limited company). Therefore, in this guide, we’ll research how company distributions work. We’ll also look at when and how often you can take dividends from your company (UK).

You’ll be very busy while doing your UK contracting work daily. However, many limited company contractors sometimes wonder when they can make company distributions. Dividend payments are disbursements to shareholders from company profits. Therefore, many UK contractors will think about when the right time is to pay these. Moreover, many will ask how often you can pay UK dividends. There’s no correct answer regarding how often dividends are paid (UK). Indeed, when you consider how often you can take a disbursement, many will choose to take these each month, quarterly or every six months.

In this guide, we’ll investigate when you can take UK dividends/disbursements from your business and what else to consider as part of owning a limited company paying dividends.

Initial thoughts 

First thoughts on how to take director dividends from a company 

As a UK contractor professional, how often and when can I take dividends from my contracting business? If you consider this, the time when you make these payments depends on your current finances. What’s more, it depends on your planned income levels. HMRC has its basic guidelines on taking money out of a limited company. Furthermore, when you take a dividend, this depends on your total number of shares. A company pays distributions to its shareholders based on their shareholdings. Therefore, let’s now research how often I can take dividends from my company (UK) and what we should consider here.

Common questions 

As a UK limited company owner, you may have questions about when you can take company disbursements. This is common amongst contractors and other limited company owners, and such questions and thoughts include:

  • How to pay yourself dividends?
  • How do dividends work in a limited company?
  • When can you pay dividends?
  • How often can you take dividends?
  • How much can I take in dividends?
  • Do I pay tax on dividends from my limited company?
  • How many dividends can you take a year?

In this guide, we’ll cover the above and determine when your company can make a disbursement. As a contractor, it’s good to know this, as it’ll help you plan your income accordingly going forward. 

Other guides

Before moving on, as a limited company contractor or business owner, you should consider several aspects before paying a dividend disbursement. Besides knowing how to pay yourself in dividends, these include:

  • When can you pay yourself dividends (this guide)?
  • When UK contractor limited company dividends are illegal. We look at what to do when you pay dividends from a Ltd company and have taken too many disbursements.

These are all handy guides and will help get you clued up on making disbursements when you’re a company owner. Moreover, many other helpful guides on this contractor website help you plan your finances and save tax as a UK contractor. 

Secondary considerations 

When can I take dividends as a UK contractor? 

Let’s now look at when you can take dividends. As part of this, we must consider a couple of things. Your business can make a disbursement at a particular time in the tax year, which can help reduce your individual personal tax. However, taking dividends as a limited company contractor depends on your overall taxable income in the current tax year.

As part of considering when I can take dividends from my contracting business, you may be confused about when a disbursement is taxable. The answer here is the disbursement is taxable when it’s `declared as being payable.’ Therefore, you can draw up a dividend declaration showing the date the disbursement is payable. 

Dividend declaration

A dividend declaration can be drawn up in a dividend voucher (UK) form. The date of this voucher is the date when the payment is taxable. In addition, you can hold a directors’ or board meeting and draw up some board meeting minutes. These minutes will approve the disbursement. 

What should you consider when making a disbursement?

In general, when we consider how often I can take dividends from my company (UK), the answer is you can do this any time you want. However, you must:

  • Ensure there is enough profit in your company to do this.
  • Consider how making the disbursement may affect your own personal tax position.

These are both crucial points to remember, and you should take note of these so you can plan accordingly. 

Other thoughts when you make contractor dividend payments 

When can I take dividends from my company -make disbursement at the end of the tax year

It may be towards the end of a tax year, and you’ve decided you don’t want to make an extra disbursement. However, you may still have part of your tax allowances or basic rate tax band available. You can choose to declare a dividend payable straight away. In addition, you can withdraw the cash from your business later when you desire.

It’s best practice to ensure you use your tax allowances in the current tax year. It’s more tax-efficient to do this rather than taking more dividends from the current year’s profits in a future year. This is because, in a future year, your income may be taxable at a higher tax rate, or tax rates may increase.

Make sure there’s enough profit to make the payment 

A UK contractor limited company that makes disbursements must have enough post-tax company profits before it pays the disbursement. The post-tax profit will include the profit for the current year. The profit is calculated by taking sales generated and deducting each business expense along with any liabilities for costs, and this equates to pre-tax profit. We deduct the Corporation Tax from the pre-tax profit, which gives the post-tax profit. We must also add on any retained profit from the previous financial period.

Please see the guide we mentioned earlier on how much you can draw as dividend income, which explains how to calculate this.

The annual dividend allowance 

The dividend system was changed on 6 April 2016. Each taxpayer had an annual allowance of £500 in 2024/25 (£1,000 in 2023/24). Therefore, if you’ve enough funds in your business, you should pay at least £500 in 2024/25 to use up your DA.

UK tax bands & further thoughts 

When can I take dividends from my company -the UK tax on disbursement income 

Let’s now consider what tax you pay on limited company dividends. Your tax depends on your other taxable income in the same tax year. However, it’s vital to note income tax and national insurance contributions are payable on salaries. On the other hand, only tax is payable on disbursement income.

Dividend income is treated as the top slice of your income in a tax context. To explain, these are taxable after all other sources of income. Different sources will include employment income, rental profits, pension income, self-employment income, etc.

The UK tax bands & tax rates 

The rates of income tax that apply in 2023/24 and 2024/25 are:

Income tax band Thresholds 2023/24 and 2024/25 Dividend tax rate
Personal allowance 0-12,570 0%
Basic rate taxpayers 12,571 – 50,270 8.75%
Higher rate taxpayers 50,27 1- 150,000 33.75%
Additional rate taxpayers 125,141 upwards 39.35%

We’ll continue to update the above as the rates and allowances change in the future. 

What to consider going forward?

As part of the above, please bear in mind the following:

  • The £12,570 shown above is your personal allowance.
  • However, please remember that your annual DA will be £500 in 2024/25 (£1,000 in 2023/24).
  • Therefore, if you’ve no other taxable income, you could earn £12,570 + £500 – £13,070 in UK company dividends before you pay tax in 2024/25. In 2023/24, this was £12,570 + £1,000 = £13,570.
  • You’ll likely have other income, though. This’ll probably be a salary, which will use up some, if not all, of your personal allowance.
  • When paying yourself dividends from a Ltd company of £1,000 or £500 tax-free, you might have some other tax-free dividends if you have any personal allowance left.
  • The rest of your disbursements up to the higher rates tax level of £50,270 is taxed at the basic rate of 8.75%.
  • When paying your tax on company disbursements to HM Revenue & Customs, you’ll do this via your Self-Assessment tax return once per year.

These are all key points to remember when you take disbursements from your limited company. Indeed, we’ll update these going forward whenever the government changes tax allowances or tax rates. 

Final thoughts 

There are certain factors for UK contractors when considering when and how often I can take dividends from my UK company. You should consider your current personal income level in the current tax year. In addition, you must evaluate if your company has enough funds to pay the proposed distribution.

It’s best practice for a company to pay a UK contractor’s dividends and salary payments separately from the company bank account. This makes it evident in your business records and accounting system what any payments relate to.

If you combine the payments, this could present questions from HMRC later. Therefore, it’s best practice in your accounting records to show clearly which payments are for UK contractor dividends and salary. This may save you from having to answer unnecessary questions from HMRC later.

Link to Contractor Advice UK group on LinkedIn

https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Contractor Tips, Dividends /

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