dividends – Minerva Accountants Bristol and Somerset

July 14, 2025July 14, 2025

Tax Tip – Dividends

If you take dividends out of your business without sufficient profits after tax to cover this they can be classed as ILLEGAL dividends. To avoid this we often end up reclassifying payments as director’s loan account (DLA) but this can lead to additional taxes in the form of Section 455 penalty tax on an overdrawn DLA, class 1A employers national insurance on beneficial loans, and personal tax on beneficial loans.

To avoid this please stop taking money out of the company and instead check:

Will there be sufficient profits left in the business to cover corporation tax? This will require you to have up to date bookkeeping or even management accounts.
Will there be sufficient cash left in the business to pay all bills as they fall due? This will require a cashflow forecast. It is particularly important to ensure that you have funds to settle all tax bills when they are due as HMRC take a particularly dim view of business owners helping themselves to cash that should have been used to pay taxes.
Have I completed the correct paperwork? You will need a minute of the board meeting declaring the dividend and a tax voucher when it is paid out or transferred to your DLA?

If you do not have enough money in your business then you will have to find the cash for your personal expenses elsewhere or to alter your lifestyle to live within your means.

August 28, 2023August 20, 2023

Tax Tip

How to take dividends – tip 2

It’s not unusual for a married couple to hold shares in a company and each of them is entitled to receive dividends on those shares. But it is important that dividends are paid to the correct shareholder.

Whilst dividends can be paid into a joint account, they should NOT be paid into an account that does not belong to the shareholder. In other words, H’s shares must be paid into H’s bank account or H+W’s bank account and W’s shares must be paid into W’s bank account or H+W’s bank account.

August 21, 2023August 13, 2023

Tax Tip

How to take dividends

I see too many directors helping themselves to company cash and calling it ‘dividends’. But every payment out of the business should be accompanied by some sort of paperwork (or digital equivalent). For dividends you will need:

Review of management accounts and forecast to demonstrate that their will be sufficient funds left in the business to cover future debts (HMRC are particularly keep on this!) otherwise the dividends are illegal

Sufficient post-tax profit to cover the dividends (another reason they may be illegal)
A minute of the board meeting voting for the dividend
A tax voucher for each shareholder.

We have templates for the last two and we can advise you on whether your bookkeeping is good enough for the first. Hint: if it’s not up to date then it can’t possibly be adequate.

July 31, 2023July 23, 2023

Tax Tip

Dividend paperwork is important.

There should be a board minute each time dividends are approved as well as a tax voucher for each shareholder.

In small owner managed businesses it is common to run a DLA (director’s loan account) throughout the year and to clear it with a single large dividend at the end of the year. With MTD coming in this will need to be done quarterly.

Before declaring any dividend the board must ensure that the company will still be solvent after the dividends have been declared. It is hard to do this without some sort of management accounts or financial review so keep a record of these too.