Dividends are usually a great, tax efficient way of withdrawing money from a company by the owners. A company can declare a dividend if it has sufficient profits available within the business.
However, there are certain rules that will dictate when a dividend can be paid by the company. Not least, is having sufficient profits in the company after taking into account liabilities and tax payments.
Unfortunately, some business owners tend to take a view that whatever cash is in the bank can be simply taken as a dividend without taking into account future payments. If this happens it can lead to what is known as ‘illegal dividends’
As long you are inputting your income, company purchases and expenses into the accounts system, Clever Accounts will calculate the maximum amount of dividend you can legally withdraw.
Checking the amount
You can navigate to the Dashboard any time by clicking the Clever Accounts logo on the top left of the page.
The dashboard provides a financial overview of the business at the current date based upon the figures entered into the system.
On the top of the page are the main summary calculations with the figure on the right hand side showing the dividend calculation.
The figure shows the current calculation based upon the numbers entered already into Clever Accounts.
If the number is a positive you can take some or all of the amount as dividends.
If the number is negative you have taken too many dividends out.
Click on PAY to pay the dividends available.
Keeping the available dividends positive will ensure you take out your legally entitled amount.
What happens if I take out too many?
You are not legally allowed to take out more than what is available each year. Taking out too many dividends will cause the company (and you) to have additional tax penalties.
If you find the figure is a minus, there are certain things you can do to ensure you put this back to positive.
- Do not take out any more dividends until you invoice out sufficient monies to cover the short fall. Remember that as taxes and expenditure are offset against the calculation, you will normally need to invoice more than the negative figure to get this back.
- Return monies back to the company. Any money re-paid back to the company should be entered as bank receipt and coded to the dividend code.
- Check to ensure you do not have any unpaid expenses, mileage or even wages that can be paid instead of making a dividend payment.
How many dividends can I take this tax year?
Simply put, you can take as many dividends as you want, as long as there is sufficient profit in the company to pay them. Your personal tax liability is calculated using your total dividends paid, along with any salary and additional personal income you may have. Please speak with your accountant to confirm what level of tax you can expect to pay, depending an how many dividends you take.