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The remainder of your income which exceeds the income tax threshold is made up through dividends.

Dividends are payments made to company shareholders from the profits of the company after corporation tax. If you draw dividends that take your income beyond the basic rate tax band, you may incur a personal tax liability depending on your annual earnings. You do not pay National Insurance on dividends.

It is up to the director/s of a company to decide if and when a dividend is paid to the shareholder/s. If the company has not made a profit then it cannot pay a dividend. Dividends can be issued to shareholders in accordance with how many shares they hold.

If, after issuing a dividend, you enter backdated expenses (as this would reduce the profit available to distribute as dividends) it could result in the dividend issued beingĀ illegal. It is therefore important to ensure that you have recorded all expenses before issuing a dividend. If you find that for whatever reason you do need to enter a backdated expense you will need to edit the issued dividend as well to ensure it remains legal.

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