Updated October 2026: tax rates revised for the 2026/27 tax year.
A company must have sufficient distributable profits to pay a dividend. Distributable profits are the company’s accumulated profits that are available for distribution to shareholders, after accounting for any losses, taxes, and other liabilities.
The directors of the company must decide whether to recommend a dividend payment and how much to pay. The directors must exercise their discretion in good faith and in the best interests of the company, taking into account various factors, such as the company’s financial position, cash flow requirements, future prospects, and shareholder expectations.
Final dividends are usually declared by the shareholders at a general meeting, on the directors’ recommendation, specifying the amount and payment date. Many small companies pay interim dividends, which the directors can declare if the company’s articles allow it.
Example, for a company with profits under £50,000 that pays corporation tax at the 19% small profits rate:
| Profit before tax | £10,000 |
| Corporation tax (19%) | £1,900 |
| Profit after tax | £8,100 |
The £8,100 is available for distribution as a dividend. Anything paid in excess would be an unlawful dividend, and the excess would usually be treated as an overdrawn director’s loan account. If that loan is still outstanding nine months after the company’s year end, the company pays a temporary tax charge (section 455 tax) of 33.75% of the amount outstanding. See our guide to director’s loan accounts.
Legal process on paying dividends
To pay a dividend, you must:
- hold a directors’ meeting to ‘declare’ the dividend
- keep minutes of the meeting, even if you’re the only director
Dividend paperwork
For each dividend payment the company makes, you must write up a dividend voucher showing the:
- date
- company name
- names of the shareholders being paid a dividend
- amount of the dividend
Tax on dividends
Your company does not pay tax on the dividends it pays out. Shareholders pay no tax on the first £500 of dividends they receive in the tax year (the dividend allowance). Above that, for 2026/27, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band.
Need help with dividend paperwork or planning? Contact us, call 0845 862 6009 or message us on WhatsApp.