This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
Directors of small limited companies often take a modest salary and then dividends. They are treated differently, so each needs its own records. See how to pay yourself.
Salary
- Paid through payroll, with PAYE and National Insurance reported to HMRC.
- A deductible cost for the company.
- AvrioBooks does not run payroll. Run payroll in a payroll service and record the totals in your books.
Dividends
- Paid from profits after Corporation Tax. A company cannot lawfully pay a dividend if it has no distributable profits.
- Not a company expense, so they do not reduce its profit.
- Require paperwork: board minutes and a dividend voucher for each payment.
- Taxed on the individual, with an allowance and rates that change. Check GOV.UK.
How to record them
- Salary: record the gross pay, employer costs and amounts owed to HMRC from payroll reports, using a journal.
- Dividends: record the dividend as a deduction from retained earnings (equity), and the payment from the bank.
- Keep the vouchers and minutes with the entry.
Common mistakes
- Taking money as “dividends” when there are not enough profits, which can turn into a director’s loan. See director’s loan account explained.
- Paying a dividend to one shareholder but not another without the right share classes.
- Forgetting the paperwork.
How AvrioBooks helps
Use journals to record salary totals and dividends, and run the profit and loss and balance sheet to see profit and retained earnings. See limited company accounting.
Frequently asked questions
Can a company pay a dividend without profits?
Not lawfully. Dividends must come from distributable profits. Otherwise the payment may be treated as a director's loan.
Are dividends a business expense?
No. They are a distribution of profit and do not reduce taxable profit.
Does AvrioBooks run payroll?
No. Run payroll elsewhere and record the totals with journals.
What paperwork do dividends need?
Board minutes and a dividend voucher for each payment.
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