how do dividends work

How do dividends work in the UK

01/04/2021Dividend Allowance

Are you looking forward to buying shares of a profitable company in the UK? Are you still wondering if this is a good time to start out? If you’ve already started out. Great job. The amount you’ll earn as a profit is known as a dividend. 

If you are looking for an accountant to reduce your taxes on dividends, reach out to us!

Struggling to find more about dividends and how to use them? Let’s dig into the details of dividends a bit further:


What Are Dividends?


Let’s say Ann bought shares of a company. The company earns a lot of profit, and Ann gets her due profit. The term specifically used for the profit Ann makes once she’s bought the shares of a particular company are called dividends. Any will get her due share once she’s paid her liabilities, business expenses, and other due taxes. These might include VAT and corporation taxes too. 


It’s important to note that people don’t rely on dividends as a sole source of income. It’s normally classified as a source of passive income. Basically, you get to choose. When would you like to have them? Whether you’d like to have them on a monthly or quarterly basis. 


How Do Dividends Work in the UK?


In the UK, every other company has its own rules of payments, payment timings, and dividends. It’s important to note that companies pay dividends on their profits. It is important to note that there are different reasons for any company to onboard shareholders. Many companies want to have a long-term relationship with their customers. So they make that an integral part of their marketing strategy and propose them to buy shares. If you’re living in the UK, you must understand that it’s compulsory for all individuals/companies to pay their taxes. So the amount you get from your dividends does not include taxes. Taxes have been deducted from those. 

Curious to know how dividends are issued? Let’s find that out together:


How Dividends are Issued:


As a business owner, it’s really important for you to understand how dividends are issued. The process is simple and easy as described below:


  • You must understand whether your company is making profits or not. Well, that’s really simple. All you’ve got to do is check the record of your balance sheet, and profit and loss statements. If you’re not making profits, you shouldn’t announce dividends. 
  • Once you’ve ensured that the company is making profits, you need to get all the directors on board to finalize whether the dividends must be paid or not. 
  • Also, make sure to prepare tax vouchers for the shareholders.
  • You must also ensure that you update and record your accounts in time.


Quick Sum Up:

Dividends not only help you secure taxes as an owner but also as a shareholder of a limited company.  We hope we’ve helped you quickly summarize ‘how do dividends work in the UK’.

Want a person to secure taxes, our chartered accountants are here to help.

Contact us today!

Disclaimer: Remember, on every investment, there lies a risk factor. This blog is just for general information.

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