Top Tips for Small Businesses: limited company dividends

Limited company dividends

Care should be taken in getting the paperwork right if you are paying limited company dividends.

If your company has received coronavirus loan support you may feel you have cash to continue to pay dividends.  Great care should be taken to ensure the dividend is “legal”.  If your business is unable to survive and ends up owing money to the lender, a liquidator will be appointed.  They will identify “illegal” dividends and you will be personally required to pay them back.

A dividend is “illegal” if, a the time of paying, there are insufficient reserves to pay the dividend.  The directors should show that they have considered company balance sheet when proposing to pay a dividend.  The decision should be minuted and evidence of the balance sheet position kept.

Where you do not have sufficient reserves to pay a dividend and need to take money from the company, it is safer to draw a salary which cannot be attacked by a liquidator.