A dividend is the distribution of a company’s profits (sometimes known as its ‘Reverses’) paid to its shareholders. It can either be interim (those that are paid periodically throughout the year like monthly, quarterly) or final (only paid once a year).
To recommend and declare a dividend, a company must hold a board meeting, where the directors decide on the terms of the transaction. The process of recommendation, declaration, and payment of dividends is highly controlled by the company's ‘article of association’ and must be documented in two vital documents - board meeting minutes and the dividend voucher.
Details of a board sitting to agree on a declaration of dividends should be recorded in board meeting minutes. Every board meeting minutes should have:
If your business has more than one director, it is imperative to add the names of all directors present in the meeting to exhibit common consent to the payment of dividends. If you are the only shareholder of the business, there is no need to split out the total dividends, otherwise, the dividend should be split in proportion to each member's shareholding.
If you require dividend structures that do not follow the holdings shown on your shareholder register, speak to an accountant about your options. These could include dividend waivers or even the operation of different share classes.
Board meeting minutes should be kept safe for company records. They are particularly handy when HMRC requires evidence of proper recommendation and declaration of dividends.
A dividend voucher includes details of the payment while recording the directors’ acceptance to issue the dividend. Each shareholder must have their dividend voucher documenting:
Not clearly declaring your dividends with the correct procedures and documentation, can make HMRC challenge the payment to be reclassed as salary, making you liable to additional national insurance and tax on the payment. Bear in mind that failing to produce dividend vouchers also attracts HMRC penalties for insufficient records. Spondoo is equipped with expert accountants to help you create dividend vouchers correctly.
Check out our limited company packages to see what we can do. We agree that the market is flooded with accountancy software to produce dividend vouchers and budget meetings. However, it is advisable to find someone that will fill your distributed dividend voucher proficiently and accurately.
