Introduction
When running your own contractor company, what should you consider regard to when can I take dividends from my company? In addition, what should you consider about how often can I take dividends from my UK company? Basically, if one asks when can you take dividends (also called distributions), there’s various considerations. Indeed, when you’re taking dividends from your company, you should consider how do dividends work (UK). Also, if we think about UK limited company contractor dividends or salary, when should you pay yourself? What’s more, if we consider limited company dividends vs salary (UK), you’ll likely take your income as a combination of salary and dividends (limited company). Therefore, in this guide, we’ll research how company distributions work. We’ll also look at how to take dividends from a limited company and how often can I take dividends from my company (UK).
While you do your UK contracting work from day to day, you’ll be kept very busy. However, many limited company contractors will sometimes wonder about when they can make company distributions. Dividend payments are disbursem*nts to shareholders from company profits. Therefore, many UK contractors will think about when’s the right time to pay these. What’s more, many will ask how often UK dividends can be paid. Basically, there’s no correct answer in respect of how often are dividends paid (UK). Indeed, when you consider how often can you take a disbursem*nt, many will choose to take these each month, quarterly or every six months.
In this guide, we’ll investigate when you can take UK dividends/disbursem*nts from your business. Furthermore, we’ll consider what else to think about in respect of this as part of being an owner of a limited company paying dividends.
Initial thoughts
First thoughts on taking director dividends from a company
As a UK contractor professional, how often and when can I take dividends from my contracting business? If you consider this, the time when you make these payments depends on your current finances. What’s more, it depends on your planned income levels. HMRC have their basic guidelines on taking money out of a limited company. Furthermore, when you take a dividend, this depends on your total number of shares. A company pays distributions to its shareholders based on their shareholdings. Therefore, let’s now research how often can I take dividends from my company (UK) and what we should consider here.
Common questions
As a UK limited company owner, you may have questions around when you can take company disbursem*nts. This is common amongst contractors and other limited company owners and such questions and thoughts include:
- How to pay yourself dividends?
- How do dividends work in a limited company?
- When can you pay dividends?
- How often can you take dividends?
- How much can I take in dividends?
- Do I pay tax on dividends from my limited company?
- How many dividends can you take a year?
In this guide, we’ll cover the above and find out when your company can make a disbursem*nt. As a contractor, it’s good to know this as it’ll help you plan accordingly going forward in terms of your income.
Other guides
Before moving on, as a limited company contractor or business owner you should consider several aspects before pay a dividend disbursem*nt. Besides, knowing how to pay yourself in dividends, these include:
- When can you pay yourself dividends (this guide)?
- How often can dividends be paid. We look here at thetiming of paying yourself in dividends.
- How much can you pay yourself in dividends? We look here at how much dividends can I take from my business.
- Theannual dividend allowance. This is the annual tax-free allowance for disbursem*nts and is available to all UK individuals.
- When UK contractor limited company dividends areillegal. We look here at what to do when you pay yourself dividends from a ltd company and have taken too much disbursem*nts.
These are all very useful guides and will help get you clued up on how to make disbursem*nts when you’re a company owner. What’s more. there’s are many other useful guides on this contractor website which help you plan your finances and save tax as a UK contractor.
Secondary considerations
When can I take dividends as a UK contractor?
Let’s now look at when can you take dividends. As part of this, we must consider a couple of things. Your business can make a disbursem*nt at a particular time in the tax year, which can help reduce your personal tax. However, when can you take dividends as a limited company contractor, it’ll dependon your overall taxable income in the current tax year.
As part of considering when can I take dividends from my contracting business, you may be confused about when a disbursem*nt is taxable. The answer here is the disbursem*nt is taxable when it’s `declared as being payable.’ Therefore, you can draw up a dividend declaration showing the date the disbursem*nt is payable.
Dividend declaration
A dividend declaration can be drawn up in a form called a dividend voucher (UK). The date of this voucher is the date when the payment is taxable. In addition, you can hold a directors’ meeting or board meeting and draw up some board meeting minutes. These minutes will approve the disbursem*nt.
What should you consider when taking a disbursem*nt?
In general, when we consider how often can I take dividends from my company (UK), the answer is you can do this any time you want. However, you have to:
- Ensure there is enough profit in your company to do this.
- Bear in mind how making the disbursem*nt may affect your personal tax position.
These are both important points to remember and you should take note of these so you can plan accordingly.
Other thoughts when you make contractor dividend payments
When can I take dividends from my company -make disbursem*nt at end of tax year
It may be towards the end of a tax year, and you’ve decided you don’t want to make an extra disbursem*nt. However, you may still have part of your tax allowances orbasic rate tax bandavailable. You can choose to declare a dividend payable straight away. In addition, you can draw the cash from your business later, when you so desire.
It’s best practice to ensure you use your tax allowances in the current tax year. It’s more tax efficient to do this rather than taking more dividends from current year’s profits in a future year. This is because in a future year your income may be taxable at a higher rate of tax or indeed tax rates may go up.
Make sure there’s enough profit to make the payment
It’s key that a UK contractor limited company who makes disbursem*nts has enough post-tax company profits before it pays the disbursem*nt. The post-tax profit will include the profit for the current year. The profit is calculated by taking sales generated and deducting each business expense along with any liabilities for costs and this equates to pre-tax profit. We deduct the Corporation Tax from the pre-tax profit, which gives the post-tax profit. We must also add on any retained profit from the previous financial period.
Please see the guide we mention above onhow much you can drawas dividend income, as this explains how you can work this out.
The annual dividend allowance
The dividend system was changed on 6 April 2016. Each taxpayer now has an annual allowance, which is currently £1,000 in 2023/24. However, it’s reducing to £500 in 2024/25. Therefore, if you’ve enough funds in your business, you should make sure you pay at least £1,000 in 2023/24 to use up your DA.
Tax bands & further thoughts
When can I take dividends from my company -the tax on disbursem*nt income
Let’s now consider what tax on limited company dividends you pay. Basically, the amount of tax you’ll pay depends on your other taxable income in the same tax year. However, it’s key to note income tax and national insurance contributions are payable on salaries. On the other hand, only tax is payable on disbursem*nt income.
Dividend income is treated as the top slice of your income in a tax context. To explain, these are taxable after all other sources of income. Such other sources will include employment income, rental profits, pension income, self-employment income, etc.
The UK tax bands & tax rates
The rates of income tax that apply in 2022/23 and 2023/24 are:
We’ll continue to update the above as the rates and allowances change in the future.
What to consider going forward?
As part of the above, please bear in mind the following:
- The £12,570 shown above is your personal allowance.
- However, please remember that you’ll have your annual DA of £1,000 In 2023/24 and £500 in 2024/25.
- Therefore, if you’ve no other taxable income, you could earn £12,570 + £1,000 – £13,570 in UK company dividends before you pay tax in 2023/24. In 2024/25 this is £12,570 + £500 = £13,070.
- In all likelihood, though, you’ll probably have other income. This’ll probably be a salary; therefore, this’ll use up some, if not all, of your personal allowance.
- When paying yourself dividends from a ltd company of £1,000 or £500 tax-free, you might have some other tax-free dividends if you’ve any personal allowance left.
- The rest of your disbursem*nts up to the higher rates tax level of £50,270 is taxed at the basic rate of 8.75%.
- In terms of paying your tax on company disbursem*nts over to HM Revenue & Customs, you’ll do this via your Self-Assessment tax return once per year.
The are all key points and you can bear them in mind when taking disbursem*nts from your limited company. Indeed, we’ll update these going forward too whenever the government make changes to tax allowances or tax rates.
Final thoughts
There are certain factors to consider for UK contractors, when it comes to thinking about when and how often can I take dividends from my UK company. Basically, you’ll should consider what your current level of personal income is in the current tax year. In addition, you must evaluate if your company has enough funds to pay the proposed distribution.
It’s best practice for a company to pay a UK contractor’s dividends and salary payments separately from the company bank account. When you do this, it’s evident in yourbusiness recordsand accounting system what any payments are in relation to.
If you combine the payments, this could present questions from HMRC later. Therefore, it’s best practice in your accounting records to show clearly which payments are for UK contractor dividends and salary. This may then save you from having to answer unnecessary questions from HMRC later.
Link to Contractor Advice UK group on LinkedIn
