Many contractors, when deciding on a payment structure, decide to opt for the limited company option for the tax advantages available by paying a low salary and dividends. When dividends are declared there is some paperwork that needs to be completed.
Dividend Paperwork in Two Steps
When you wish to pay a dividend to the shareholders in your limited company, you have only two things to do.
- Declare your dividends in the Minutes for the Board Meeting
- Write out a record of the dividend and send it to the shareholder
Barry Roback, chief executive of the Watford-based chartered accounting firm JSA which specialises in contactor affairs, explains: ''First, you tell all the shareholders how much you intend to give them out of your profits at the shareholders meeting. You can hold as many or as few such meetings as you like, although you are required to hold at least one every year.''
Dividends can be paid at any time throughout the fiscal year
Minutes of the Board Meeting
Dividends, which are portions of company profit after tax and expenses, can be paid at any time you feel you have enough in profit to distribute them, Roback explains. Once your board agrees to distribute dividends, you must indicate the fact in the Minutes of the Board Meeting which becomes part of your company records.
Your accountant will take care of incorporating the dividend payments into your corporate accounts. The accountant will also probably prepare the so-called ''dividend counterfoil.''
The Record of the Dividend
This ''dividend counterfoil'' is simply a written record stating who got the dividend, and how much it was, and what shares the dividend receiver owns. ''This is not some special form; it's a just a paper like a receipt,'' Roback explains.
Your accountant may do this for you, or you can do it yourself. It requires no special calculations or signatures.
The sole purpose of the dividend counterfoil is to provide a record for the dividend receiver. The shareholder simply has to include it with the personal tax Self-Assessment Return. Just to show that it was dividend income the shareholder received.
Dividend Paperwork - Examples and Templates
Board Minute Example
14 The Road
MINUTES OF A MEETING
HELD AT: Head Office
PRESENT: JOE BLOGGS (Director)
SARAH BLOGGS (Company Secretary)
(Director) JOE BLOGGS took the Chair.
It was resolved that a dividend of £10,000 per Ordinary Share in respect of the year ended 31/03/2007 be paid forthwith to those shareholders registered at the close of business on 02/01/2007.
The Company Secretary was instructed to prepare the necessary Minutes and distribute tax vouchers to all the shareholders.
There, being no further business, the meeting was closed.
(name): JOE BLOGGS
(Name): SARAH BLOGGS
Dividend Voucher Example
14 The Road
Dividend for the year ended 31/03/2007 payable to holders registered on 01/01/2007. Date of payment 02/02/2007.
Holding: 1 Ordinary Shares
Dividend Rate: £10,000 per share
Dividend Payable: £10,000
Tax Credit: £1111.11
This voucher should be kept. It will be accepted by HM Revenue & Customs as evidence of a tax credit.
14 The Road