How to declare a dividend and produce the dividend voucher

Published: 28th August 2008
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The articles of association of each company limited by shares determines the formal procedures to be followed in respect of declaring company dividends, In the distribution of the company net profit after corporation tax dividends represent the amount of profit paid to shareholders with the balance being retained profits of the business.

The decision to declare a dividend is normally recommended by the board of directors and must be approved by shareholders, usually by ordinary resolution at a general meeting as stated in the articles of association. In practice small limited company directors are often the shareholders and provided they agree the rate of dividends it is not necessary to hold a special meeting.

When a dividend is declared by the board meeting at which the shareholders attend or a general meeting of shareholders the minutes should state the amount of dividend declared. The dividend also has to be entered into the company financial accounts and a dividend voucher raised for each shareholder entitled to receive the profits distribution.

The model set of articles of association, Table A, state the interim dividends may be declared by the limited company. This rule allows the company to distribute dividends to shareholders at any time and as frequently as approved by the shareholders subject to the company have sufficient funds to make the payment.

One essential requirement is that the total dividend payment is less than the net taxable profit earned by the company after deduction of all expenses and corporation tax. Breaking this rule might mean dividends had been paid out of untaxed profit which could form the basis for an HMRC investigation relating to distributions from the company for tax avoidance purposes.

Provided the company has a residue of retained profits which have been subject to corporation tax dividends can be distributed from those revenue reserves to maintain dividend payments which the current year profits might not have justified.

Maintaining accurate up to date financial company accounts by accounting for dividends is important if multi interim dividends are to be declared to avoid potential tax issues. The dividend declared should take into account the corporation tax to be deducted from the net taxable profit.

For a small limited company where the directors are the shareholders the corporation tax dividend income tax balance is often the most tax efficient method of withdrawing income from the business.

The minutes of the board meeting at which the dividend was declared should contain the following details.

A simple statement is required stating that the minutes of the board meeting of the full company name and address where the meeting was held and the date of the meeting. List the directors present at the meeting followed by the dividend statement. For example, it was resolved that the company pay a dividend of xxx pounds per 1 pound ordinary share for the company year end date to shareholders registered at the effective date by which the shareholders were registered as members.

The dividend voucher which is raised by the company and issued to the shareholders should state the name and address of the company, name and address of the shareholder, number and class of shares held, the dividend to be paid for the company year end date and also stating the date at which the shareholder had to be a registered holder of the shares. The dividend voucher should be dated and signed by the director and also contain a statement of the dividend tax credit.

The dividend tax credit should state the number of shares, amount of the dividend payment and the amount of dividend tax credit. The dividend tax credit being calculated by dividing the net dividend payment by 0.90.

By dividing the dividend paid by 0.90 when the dividend paid is added to the dividend tax credit the resultant total is the dividend income of which the dividend tax credit represents 10 per cent.


Terry Cartwright is a qualified accountant in the UK and producing Accounting Software including Company Accounts packages for small limited companies in accordance with Companies House and HMRC submission requirements.

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