If you run a limited company, you have probably heard the word ‘dividends’ come up quite a lot and may be wondering what they are and how they work. The good news is that dividends are not as complicated as they sound, and they can be a smart way to take money out of your business. Although this can sound pretty complicated, we can help make it easier to understand. Keep reading to find out more.

What are dividends?

Dividends are payments made to shareholders from a company’s profits. Once your business has paid all its bills and taxes, any leftover profit can be shared out. If you are the owner and the only shareholder, this usually means the dividends come to you.

You don’t pay national insurance on dividends, and there is a dividend tax-free allowance. This is why many business owners take a low salary and top it up by paying dividends.

When can you take them?

You can only pay yourself dividends if your company has made a profit after tax. You can’t use money from loans or investments, as it has to be from profit. Before paying anything out, it is a good idea to check your accounts carefully. If you pay dividends when there isn’t enough profit, you could end up owing money back later. It is also important to keep proper paperwork, even if it is just you. This means writing up a dividend voucher and recording it in your accounts, which is something business accountants Worcester, such as www.hazlewoods.co.uk/expertise/business-accountants/worcester, can help you with.

Get advice when you need it

Every business is different, and tax rules can change over time. This is why many small business owners speak to professionals to help make sure everything is done properly. It is better to get it right the first time than to fix mistakes later.

Dividends are a useful tool, but they need to be handled with care. Once you understand the basics, they can be a great part of how you pay yourself.