How do they work?
It is common for a contractor to draw some salary from the Limited Company. This is typically set at a level below or close to the thresholds for tax and National Insurance, to minimise liabilities.
Dividends don’t attract National Insurance, so they can be a more tax-efficient way to draw income once the National Insurance threshold is reached.
You don’t need to take all company profits as dividends – you can leave money in the company to maximise your tax advantage. Whether this is a good idea depends on your personal circumstances – your accountant will be able to advise.
How do I take them?
When taking dividends, your company needs to issue a dividend voucher. This is an official record of a dividend payment. Your accountant can help with this, or you can use a template. A dividend voucher needs to include:
– Your company name
– The shareholder’s name
– The amount paid
– The date
– The signature of the company director
When can I take dividends?
Whenever you like! There is no set date that dividends need to be taken by. As long as there are available profits in the company, you can take them as dividends – the more irregular the better.
This doesn’t mean you can just draw money out of the company without planning. Dividends attract tax, using different thresholds, so you need to consider this before taking any.