What Are Dividend Vouchers ?
For a limited company, profit distribution can be done by means of dividends. Once a company has identified that it has adequate profits to share out as dividends, it must compute the amount of dividend to be paid and minute the discussion to declare dividends. Since the introduction of the new dividend tax, it has become imperative to prepare dividend vouchers or remarks (notes) of a meeting where dividend payment has been agreed. Also, each shareholder must be issued a dividend voucher. A dividend voucher, sometimes referred to as a dividend counterfoil, is a written record depicting how much dividend was paid and to whom. A company can either issue a dividend voucher itself or ask an accountant like DNS accountants to do it on its behalf.
It is imperative for both, the company and shareholders, to maintain a record of the dividend voucher. Shareholders must keep the dividend voucher as an evidence for tax purpose and also use it to file their self-assessment tax return. Essentially, a dividend voucher is a simply way to keep records of who received it, when it was received, and how much dividend was received.
The dividend voucher should include:
- Name and address of shareholder
- Limited company name
- Date of issue
- Amount of dividend paid
- Signature: Company Director
Example of a dividend voucher:
Limited Company Name
Limited Company Registered Address
The board of directors of [THE COMPANY] met at [BUSINESS ADDRESS] on [DATE] and declared an interim dividend of £X.X per Ordinary Share in respect the financial year ended [YEAR END DATE] payable to shareholders registered at the close of business on [DATE].
No. of ORDINARY SHARES:
Dividend Payment: XXX
Company Director or Company Secretary (if applicable)
Taking Money from a Limited Company
Director of a limited company can take money from the company by means of Salary, benefits, and expenses. To receive the stated remuneration, the company must be register with HM Revenue and Customs (HMRC) as an employer. A company must deduct Income Tax and National Insurance contributions (NIC) from a director’s salary and pay these to HMRC. Also, tax is liable on business belonging that may be used for personal need.
Dividends cannot be treated a business costs while computing the Corporation Tax. A company should not pay-out more in dividends than the profit available from the current and prior financial year. Ideally, dividends must be paid to all shareholders. For every dividend payment a company makes, a dividend voucher must be written specifying all the essential details listed in a dividend voucher. A copy of the voucher must be shared with the shareholder and also be kept in company records. The company does not have to pay tax on dividend payments. Rather, shareholders must pay Income Tax if it’s over £5,000.
There are no rules which determine how often a company should distribute dividends. However, we at DNS accountants suggest that processing dividend payments annually will help the company to analyse its profits and take the right call. The most essential thing to remember is that all dividend payments must be legal (i.e. there is satisfactory retained earnings in the company to cover the dividends), or else they will be classed as illegal and could result in HMRC penalties.
In contrast to traditional employees, limited company owners can determine the timing of dividend payments, as well as the amounts to be paid as dividends. This is helpful in tax planning. For example, if a person is working hard during a current tax year, with a view to taking a ‘career break’ the coming year, he / she would be sensible to delay distributing some of the profits until the year in which earning will be less. Doing so, an individual will pay less higher rate tax by splitting the distribution over two different tax years.
An individual may also take advantage by splitting ownership of the company with a spouse, particularly, if there is no additional source of income. As a couple, there are provisions like non-working partner’s tax allowance, and hence, individuals can pay less rate tax.
Tax credits do not apply post the 2016/17 tax year. From 6th April 2016, instead of net and gross dividends, and the tax credit, only the total dividend to be paid should be included in the dividend vouchers.
Computation of tax payable on dividends
As per the new dividend taxation system, fixed tax rates apply for 2016/17 tax year onwards. Through a self assessment form HMRC must be informed about the income received as dividends. For 2016/17 tax year onwards, dividend income is taxed as follows:
|Tax Band||Income for 2016/17||Tax rate|
|Basic||£0 – £32,00||7.5%|
|Higher||£0 – £32,000||32.5%|
A dividend allowance of £5,000 is also provided, which means that the initial £5,000 of dividends is not taxable. However, this allowance does not decrease the total income upon which tax needs to be paid. Dividends are taxed after all other income sources have been taxed, e.g. salary and other pertinent earnings (investments or savings). Consequently, dividends will fall into one of the tax bands states above, after other income sources and personal allowance have been added together.
HOW DNS ACCOUNTANTS CAN HELP
DNS Accountants is one of the leading accounting service providers in the United Kingdom. A trusted brand, DNS has years of knowledge in the accounting and taxation domain. The firm has been helping individuals with Dividend Voucher guidance and other dividend related tax queries for many years. The DNS team includes learned taxation professionals and ACA’s or Chartered Accountants (CAs). With its primary focus on customer service, the firm believes in delivering unmatched client service. DNS Accountants offers:
- Services at a nominal rate
- Best-in-class accounting and tax-planning services
- Prepare dividend voucher and provide guidance
Reliable services are imperative to businesses and this is the predominant reason why so many businesses rely on DNS Accountants. The firm provides accounting and taxation services to owner-managed businesses and self-employed individuals, including freelancers and contractors. DNS Accountants’ expert team of Chartered Accountants (CAs) and ACAs provide services ranging from accounting to payroll management to tax preparation and filing.