We have recently had many enquiries regarding Dividends and how they are paid and taxed so thought it was worth providing some further insight.

Dividends paid to Directors of Limited Companies are paid outside of the PAYE scheme and therefore do not get processed through a payroll system and hence do not show on a payslip.

They are paid on an ad-hoc basis from Company profits, after tax has been calculated and paid to HMRC. You cannot pay Dividends to Shareholders or Directors of a Limited Company if the Company is making a loss or cannot pay more dividends that are available in post-tax profits.

What this means in theory is that dividends paid to Directors of Limited Companies are taxed at a special dividend rate. HMRC allow £2,000 per individual tax-free at 0% per year with dividends received beyond the initial £2,000 per year reflective of individual personal tax rates but if you are a basic rate taxpayer, the dividend tax rate is 7.5% for example.

If you wish to discuss payment of dividends and the tax implications, you can visit https://www.gov.uk/tax-on-dividends or contact us directly.

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