The legal requirements before paying a dividend
Learn about distributable reserves and the documentation required to pay a dividend
A dividend can only be paid lawfully if the company has sufficient distributable reserves. Paying without them is an unlawful distribution with serious consequences.
Distributable reserves
Distributable reserves are accumulated post-tax profits shown as Retained Earnings on the balance sheet. Before any dividend, contact us to confirm the available reserves. In Xero, run a Balance Sheet set to today and check the Retained Earnings figure. The dividend amount must not exceed this figure.
The documentation required
Every dividend requires: board minutes recording the decision (including amount per share and payment date), and a dividend voucher issued to each shareholder. We prepare both documents as part of our dividend administration service. Never pay a dividend without these documents in place and dated before or on the payment date.
💡 Important: An undocumented dividend risks HMRC reclassifying it as salary, with full PAYE and National Insurance contributions applied retrospectively. We prepare all documentation when you ask us to declare a dividend. Never just transfer the money without going through this process.
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