Are You Paying Dividends Correctly?
This video explains what needs to be taken into account if you pay yourself in Dividends from your Limited Company. This effects the majority of small Limited Companies in the UK.
Please click to watch our short video or continue reading for the transcript:
If you operate your business through a Limited Company your will no doubt be paying yourself using the most efficient method for tax purposes, that is low salary plus dividends.
If that is you there is something very important you need to know, especially in these difficult times when you might have borrowed money, for example with a Bounce Back Loan.
When you pay yourself a dividend it is very important that your company retains sufficient assets so that it does not become technically insolvent.
In other words your assets, (Bank, Stock & Debtors)
need to be more than your liabilities (Overdraft, Creditors, Loans, current year Tax).
If the liabilities side is more than the asset side, especially on the date you prepare your accounts to, the dividends are invalid and HMRC can ask for a witholding tax of 32.5%.
As always pick up the phone or email us if you need any further clarification.