💷Dividends
1. Definition: Dividends are payments made by a company to its shareholders from its profits.
2. Eligibility: A company can only pay dividends if it has sufficient profits after tax.
3. Procedure:
- Hold a directors’ meeting to declare the dividend.
- Keep minutes of the meeting.
- Issue a dividend voucher to each shareholder, detailing the date, company name, shareholders’ names, and the dividend amount.
💡Taxation:
1. Dividend Allowance: For the tax year 2024-2025, the dividend allowance is £500.
2. Tax Rates: Dividends above the allowance are taxed at different rates depending on the income tax band:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
🏦Overdrawn Directors’ Loan Accounts (DLA)
1. Definition: An overdrawn DLA occurs when a director borrows more money from the company than they have repaid.
2. Record Keeping: Directors must keep a record of all transactions in the DLA.
3. Tax Implications:
- Corporation Tax: If the loan is not repaid within 9 months of the end of the company’s accounting period, the company must pay Corporation Tax at 33.75% of the outstanding amount.
- Benefit in Kind: If the loan exceeds £10,000 at any time during the year, it is treated as a benefit in kind, and the director must pay Income Tax on the loan through a Self Assessment tax return.
💳Repayment: The company can reclaim the Corporation Tax paid on the loan once it is repaid, written off, or released.
📞 Need advice? If you would like more information regarding your company’s dividend strategy or an overdrawn directors’ loan account, please give us a call!