Dividends Guide

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Inside our Limited Company Expenses guide:

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What are Dividends?

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What are Unallocated Payments?

Unallocated payments are where the client has given you more money than they owe.

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Dividend Calculator (Excluding VAT)

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How do I pay an employee?

If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:

  1. Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
  2. Choose payroll software to record employee's details, calculate pay and deductions, and report to HMRC.
  3. Collect and keep records.
  4. Tell HMRC about your employees.
  5. Record pay, make deductions and report to HMRC on or before the first payday.
  6. Pay HMRC the tax and National Insurance you owe.
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How do I pay myself as a contractor?

A contractor working through their own limited company can pay themselves through a couple of ways such as paying a salary and paying dividends. There are a few factors that need to be considered when deciding the best way to go about this.

For example, when operating inside IR35, contractors will be restricted to paying themselves a salary however when operating outside IR35 the doors are opened to maximise tax efficiencies.

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Dividends Guide

  • What are dividends?
  • Dividend tax rates and allowances
  • Paying taxes on dividends
  • Dividend FAQs
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What are the taxes, rates and allowances on dividends?

A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.

Dividends are calculated based on profits-what is left in your company after all expenses have been paid-not revenue.

Dividends can be either paid in cash or reinvested into your investment portfolio via dividend reinvestment, or via SCRIP dividends-which allow companies listed on the LSE to give investors additional shares instead of cash payouts.

Dividend tax refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.

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Dividend Calculator with VAT Flat Rate Scheme

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Dividend Tax Calculator 20/21

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What is a directors loan account?

As a limited company director, you can access the money in your company bank account through a facility known as a director's loan.

This can come in handy in instances when your personal finances are in need of a boost, yet taking out a director's loan is a decision that requires careful consideration. That's because there are tax and accounting implications, and it's best to speak to an accountant so that you fully understand the consequences.

But before you dive into the details, you'll need to have an understanding of the basics-such as what a director's loan account is, what the loan can be used for, tax rules you need to be aware of and more.

Here's where our guide comes in:

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How to calculate holiday pay for overtime and commission payments

"What are the rules around holiday pay?" is a common question often asked by employers.

It can be confusing, as regulatory changes mean that employers now need to consider additional elements when working out an employee's holiday pay.

Simply put, employers now need to include regular commission and regular overtime payments when calculating an employee's or worker's holiday pay.

This is explained in further detail below:

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What is Dividend tax?

A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.

Dividend tax therefore refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.

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When can I pay myself as a Limited Company Director?

As a limited company director, you may pay yourself through taking a salary and drawing dividends.

Salaries are typically paid out monthly. While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.


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What are dividends and why are they important?

A dividend is a payment of profit that a limited company distributes to its shareholders. This is the money remaining after all business expenses and liabilities, as well as outstanding taxes (including VAT and Corporation Tax) have been paid off.

Dividends are important as they are a tax-efficient way to pay yourself from your limited company. Other than drawing dividends as income, you may also consider paying dividends into a pension fund, ISA or to family members.

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Do I need to be set up as an Employee in my new Company?

As a limited company director, you're classed as an office holder. You aren't automatically an employee at your company-even if you're the sole director and only person working in the business.

It's isn't mandatory to be set up as an employee at your new company. However, there are benefits to doing so if you aren't employed elsewhere, as you'll be able to take advantage of your tax free allowances.

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What is the optimal salary for a Company Director?

The optimum salary for a contractor to pay themselves in the current tax year is dependent on their overall income throughout the period.

In the instance there is no other income to be considered, it is generally recommended that salary is paid in line with the Secondary National Insurance threshold which is currently £732 per month (20/21).

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How do I pay a company secretary?

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How/ when do I pay myself Dividends?

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How do I pay myself through a Limited Company?

As a limited company director, you can pay yourself through:

1. Taking a salary

As the director of a limited company, you're also considered an employee. As such, any salary you draw will be paid through the PAYE scheme-similar to how other employees of the company will receive their pay.

You'll run a payroll, report to HMRC and receive your salary (after taxes have been deducted at source).

2. Dividends

A dividend is a payment of profit that a limited company distributes to its shareholders.

While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.

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What are dividends and dividend taxes?

As a limited company director, you have greater flexibility to work around the tax system, and are able to implement tax optimisation strategies not available via other business structures.

One of these ways is to draw dividends from your company, as opposed to receiving a salary; doing so can help to reduce your tax bill.

If you're newly self-employed, this can be rather confusing.

You might be wondering: How can dividends help reduce my tax bill, and what taxes do I need to pay on them? Are there additional considerations I need to keep in mind?

These are the questions we'll be answering below:

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