Hi
My boss whats to know how to calculate the dividends he is allowed to take. He is the only director in his Ltd company.
My understanding is you take Income less expenses less corporation tax of 21%. That's probably a crude analysis, I have searched the internet for some sort of template I can use but can't find the right thing.
Is anyone able to help me out here.
Many thanks
Replies (4)
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Not quite
It is irrelevant if your boss is the only director. What matters is that he is the only shareholder. If so, dividends can legally be paid only out of accumulated (undistributed) profits after tax according to a set of accounts.
The starting point is therefore the balance carried forward on the Profit & Loss account in the previous year's statutory accounts. A sole shareholder could take that entire balance as a dividend.
With regard to the current year, you need to prepare management accounts for the period up to date. The crude profit would indeed be income less expenses, but you should also be allowing for accruals and prepayments, stock if any and depreciation of fixed assets to arrive at the net profit before tax. Tax is more complicated as it involves adding back depreciation to the net profit and deducting capital allowances which might well be more than the depreciation. However, tax at 20% (not 21%) of the net profit after depreciation would give you a reasonable estimate for arriving at the net profit after tax so far in the current year. A sole shareholder could take that as dividend in addition to any accumulated profits brought forward.
not quite true
It is irrelevant if your boss is the only director.
Remember that directors can authorise payment of interim dividends so the number of directors is hardly irrelevant.