Dividends
What it is
A distribution of company profits to shareholders, proportional to their shareholding. Dividends can only be paid from retained distributable profits — not from capital, loans or anticipated future profits. They are not a salary and require a board resolution and dividend voucher.
Why it matters
Dividends are typically more tax-efficient than salary for director-shareholders because they attract lower personal tax rates and no National Insurance. But they only work when real distributable profits exist — paying them without sufficient profits is an unlawful dividend and must be repaid.
Common mistake
Paying dividends without first confirming that distributable profits exist. An unlawful dividend can create personal liability for the directors who declared it, regardless of intent.
Official source
GOV.UK — Paying dividends ↗Related
Disclaimer
General educational guidance only — not legal, tax, accounting, immigration, investment or financial advice. We don't guarantee the information is complete, current or suitable for your situation. Always check official sources (GOV.UK, Companies House, HMRC, the relevant professional body) and speak to a qualified professional before acting. Last reviewed: June 2026.