Please note that this article relates to UK-based businesses.
Dividends are a common way of remunerating shareholders of a company. There may be interim dividend payments as well as a final dividend payment, and the company must have made sufficient profit for the dividend(s) to be paid.
How Much Can be Paid Out to Shareholders in the Form of Dividends?
If a business turned over £100,000 in a particular financial year, and the costs (salaries, expenses, etc) of running the business amounted to, say, £50,000, the amount of corporation (business) tax owed would be £10,500 (using 21% as the corporation tax rate). This would leave £39,500 available for dividends.
If there were ten shareholders in the business, and they all owned the same number and type of shares, they would each receive £3,950 in dividend payments if all the available money was used.
Dividends are paid per share, so the more shares you own, the greater your dividend payment will be (when compared with another shareholder of the same type in the same company).
What is a Dividend Tax Voucher?
When a dividend payment is made, a tax voucher must be raised and issued to the shareholder. This is normally done by post. This shows the size of the dividend, and the amount of tax credit. The tax credit shows the amount of tax paid by the company on behalf of the shareholder. Dividends are paid after tax (at the basic rate) has been deducted. If you are a higher rate tax payer, you may well have additional tax to pay on the dividends you have received.
