Dividends - Getting the Paperwork Right
If you run a small limited company and take part of your remuneration as a dividend, make sure you attend to the administration - get the paperwork right!
Dividends are treated as part of your income and as long as you remain a basic rate taxpayer there is no further tax to pay - in effect the company pays the basic rate tax for you. If you are a higher rate tax payer you will be assessed for the higher rate element in your annual self-assessment calculation.
When you make a dividend payment you need to generate two pieces of printed evidence:
- Appropriate minutes sanctioning the dividend and
- Dividend vouchers setting out the amount of the dividend, tax deducted etc.
If you don't provide this basic evidence you may give the Revenue an excuse to change the status of the payment.
For instance they may assert that the payment was not a dividend but a loan to the director - this would create benefit-in-kind charges for director/shareholders and a 25% corporation tax charge for the company. (The 25% tax charge is recoverable but potentially there could be a considerable delay in receiving a refund.)
Alternatively if the dividend is a regular payment, say monthly, the Revenue may try to argue that the payment is taxable as shareholder's salary. Assuming of course that the shareholder is a salaried employee or director. This would create unplanned National Insurance charges for the shareholder and the company, as well as income tax charges, with or without penalties.
If you need assistance preparing the required minutes and dividend vouchers or general advice and guidance please call.