It is important that you carry out the following checks before paying dividends:
1.Ensure that, after dividends are paid, the company will still be solvent. This means that you should prepare management accounts to check the profit available and to estimate the corporation tax due.
2.Ensure that you pay the same dividend per share to ALL shareholders of the same class. If you wish to pay different amounts you will need to consider either a dividend waiver or different classes of shares eg A and B shares, sometimes known as ‘alphabet’ shares.
3.Ensure that all dividends are paid into a bank account in the name of the shareholder. Eg a husband’s dividends can not be paid into their wife’s account but the can be paid into a joint account, or one in the husband’s sole name.
4.Ensure that all dividend payments are accompanied by a minute from the board of directors and a dividend voucher. We have templates if you need them.
5.It really isn’t good practice to take advance payments of dividends and wait until the year end to sort put dividends as we have seen too many clients with overdrawn DLAs and insufficient profits to clear these. I refer you to point 1! The overdrawn DLA can result in a benefit in kind on the ‘beneficial loan’ even if cleared before the year end.