Loading Profile...
What is the method to calculate monthly dividends for a Ltd company?
Hello! I have a Ltd company and since I started using Freeagent, I'm trying to minimise the amount of work my accountant does for me. I asked her how I must proceed to calculate my monthly dividends, but her answer was rather vague and suggested she should be the one undertaking this task, rather than me. My business is extremely simple - one employee, very few expenses, minimum equipment. Is she right? Thanks a lot.
Céline
Céline
I’m unsure
1
person has this question
I have this question, too!
Tell me when someone answers.
The more people who ask this question, the more it gets noticed.
The more people who ask this question, the more it gets noticed.
-
Inappropriate?Hello Celine,
Paying too much from your company as dividends is illegal, so you do need to be ultra careful here - and FreeAgent will not alert you if you pay too much as dividends.
If your accountant feels that it's best if she calculates them, then it's up to you and her to decide what's best.
You can use the FreeAgent P&L overview on the main screen to help you (the "retained profit" figure is a good rough guide to how much you can pay out), but it is a minefield so I would suggest you agree it with your accountant.
You may be able to agree that you work out a figure using guidelines she provides, then ask her "Can I pay myself £x?"
That's my twopennyworth.
Kind regards,
Emily -
Inappropriate?As long as you make sure your dividends are only paid from profit, is there anything else you need to consider? -
Inappropriate?The only other thing you may need to remember is that, while your Dividends are indeed the mechanism for taking profits out of the company, you can't take ALL the profit - you'll need to pay Corporation Tax out of that as well.
My accountant recommends that, whatever dividend you take, you should then move an additional amount equal to 25% of the dividend into a savings account at the same time to cover your future Corporation Tax bill.
If you don't think you can afford to do that, then you need to reduce your dividend until the figures work for you.
It's also worth mentioning that cashflow often means you may not have the cash in the bank at the best time to declare a dividend. You can still 'declare' the dividend (showing it in the DIrectors Loan Account as owing to you), and then take the cash out over a period of time, as your clients pay their invoices.
I did a summary of the process for showing the declared dividend in the DIrectors Loan Account here....
http://community.freeagentcentral.com... -
Inappropriate?Thanks very much to all for your help, it's much appreciated.
Emily, James Ward and I are your biggest fans! :)
I’m much clearer
1 Comment
Add a comment
This answers the question
-
Thanks Celine! -
Inappropriate?Paying a dividend affects your personal tax liability as well as the company tax position (which Luke and Charles have already covered). You should be paying attention to that as well.
Perhaps that's what your accountant was trying to say. Although if she was being vague perhaps not!
Dividend planning is what I would call it and it covers timing, the probability that the company year end is different to the tax year, higher rate tax,Tax Credits (if applicable) etc. -
Inappropriate?Thanks Stuart. Having read all this, it looks like dividend planning is beyond me. I think I'll leave it to my accountant.
I’m confident
-
Inappropriate?Hi Céline, make sure your accountant talks in terms of what I posted above otherwise she may well just be preparing paperwork which FreeAgent can do for you anyway.
EMPLOYEE
