Many contractors, when deciding on a payment structure, decide to opt for the limited company option for the tax advantages available by paying a low salary and dividends. When dividends are declared there is some paperwork that needs to be completed.
When you wish to pay a dividend to the shareholders in your limited company, you have only two things to do.
Dividends, which are portions of company profit after tax and expenses, can be paid at any time you feel you have enough in profit to distribute them, Roback explains. Once your board agrees to distribute dividends, you must indicate the fact in the Minutes of the Board Meeting which becomes part of your company records.
This ''dividend counterfoil'' is simply a written record stating who got the dividend, and how much it was, and what shares the dividend receiver owns. ''This is not some special form; it's a just a paper like a receipt,'' Roback explains.
Your accountant may do this for you, or you can do it yourself. It requires no special calculations or signatures.
The sole purpose of the dividend counterfoil is to provide a record for the dividend receiver. The shareholder simply has to include it with the personal tax Self-Assessment Return. Just to show that it was dividend income the shareholder received.
(Director) JOE BLOGGS took the Chair.
It was resolved that a dividend of £10,000 per Ordinary Share in respect of the year ended 31/03/2007 be paid forthwith to those shareholders registered at the close of business on 02/01/2007.
The Company Secretary was instructed to prepare the necessary Minutes and distribute tax vouchers to all the shareholders.
There, being no further business, the meeting was closed.
Dividend for the year ended 31/03/2007 payable to holders registered on 01/01/2007. Date of payment 02/02/2007.
This voucher should be kept. It will be accepted by HM Revenue & Customs as evidence of a tax credit.