If you are a business owner operating on the structure of being a limited company, tax efficiency is one of the biggest priorities you have, as well as a significant challenge you face.
Staying on top of government dues and fees is incredibly important, and it’s a crucial aspect of your business’s financial health. As any business owner that has done the same will tell you, the process of making your own company more tax-efficient can significantly improve its profit margins.
In the pursuit of tax efficiency, you’ve likely become well-acquainted with the fact that paying yourself dividends alongside a salary is an optimal way of drawing money out of your business. However, getting this done can be a somewhat confusing process—and it brings up a question: What are dividends and how often can I take dividends from my limited company?
What Are Dividends?
Knowing the maximum frequency of taking dividends from a limited company each year entails getting familiar with the details involved. A dividend is a portion of a company’s profit paid to its shareholders, allowing investors to receive financial gain on their capital.
Business profit is defined as what is left in the business after all taxes, expenses, and liabilities have been paid. Over time, profit is a vital point of consideration because it results in something called “retained profit”, which accumulates over time.
Cheap small business accountants in London will assist you in securing taxes and lead your business to the right path to achieve long term success
How Much Can Your Company Pay as a Dividend?
Based on current rules set by Her Majesty’s Revenue and Customs (HMRC), there is no set limit or a specific amount that a company can pay its owners and shareholders. It is worth noting that payments may fluctuate depending on a company’s performance. When it doesn’t have any profit, then there are no dividend payments to be distributed.
When you pay yourself or your shareholders a dividend, it’s vital to ensure there’s enough money in the coffers to cover day-to-day cash flow on top of expenses and other dues. This is precisely why experts such as Cheap Accountants In London urge owners to triple-check their figures before all else to ensure that no problems arise during payouts.
When Can You Pay Out?
Currently, the HMRC’s legislation doesn’t contain any hard and fast rules about how frequently a business owner can pay out dividends. This means that you can pay yourself and your shareholders whenever and how often you’d like.
How Do Dividend Payouts Affect Taxes?
The fact that payouts can be made at any time may be quite tempting for your personal gain, but it’s critical to understand that regularly taking ad-hoc payments can indicate that there are issues with fund management.
Based on best practices, most businesses opt to schedule their payouts quarterly or semi-annually after establishing the leftover profits. Given extraordinary circumstances like the COVID-19 pandemic, it can be quite tricky to determine whether quarterly or semi-annual payouts are optimal because profits can vary dramatically at different points in time.
Today, many business owners must be aware that the frequency at which they pay out dividends can significantly affect their individual and business tax returns. You and your investors will need to declare payouts as part of a Self Assessment tax return, which is why it’s much more efficient to produce an even payout year after year. Additionally, scheduling your payments during late March or April yearly can make matters easier when filing your returns and documenting your income.
Need help? No need to be concerned! Our experienced limited company accountants in London are available to assist you in reducing your tax liability.
When determining just how often you can take dividends from your limited company, the possibilities are endless. However, it’s crucial to understand that this shouldn’t be taken as an invitation to withdraw at your whim. By considering the critical points mentioned above, you can take a more careful approach to plan your payouts in the most tax-efficient manner possible!
We’re an accounting firm in London specialising in affordable accounting services in the UK for start-up businesses, property owners, and self-employed professionals. Get in touch with our consultants today to see how we can help!