A dividend is a payment a company can make to shareholders if it has made a profit.
The maximum legal dividend you can take is based on your distributable profits after tax, you can calculate this as follows:
Profit for the Period XXX
Reserves bought forward XXX
Corporation tax estimate (XXX)
Dividends taken (XXX)
Available for dividends XXX
When taking a dividend, it is your responsibility to check the above and that:
- There is enough money in your bank account on the present date
- You have set aside enough money to pay any tax or expenses
One suggestion is that you keep separate the money you owe and the money available to be taken as a dividend. To do this, you might consider setting up a separate bank account. The first account would be for all of your business transactions. You could then use the second account as a savings account (it would still need to be a business bank account of course) and transfer money as needed. This could be a way to stockpile PAYE, Corporation Tax, Vat owed, in addition to any other recurring business expenses and/or large expenses on the horizon. This way you can easily tell how much is available to take as a dividend at any one time.
NB - You cannot count dividends as business costs when you work out your Corporation Tax.