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Tax liabilities for dividends

There is generally a tax advantage to extracting profits by way of dividends, often once a salary had been taken to utilise the personal allowance, ensure entitlement to certain state benefits and in certain cases to ensure payment of at least the national minimum wage, see the Salary v dividend guidance note.

Dividend planning strategies include consideration of cashflow issues, administrative ease as well as tax savings. Clients whose businesses were previously run in unincorporated forms can find it difficult to adhere to remuneration strategies and need to exercise particular care in this area.

A newly incorporated business needs to be aware of the legal requirements for paying dividends, as set out in the Dividends ― payment procedures and practical issues guidance note. Furthermore, it is important to ensure that shareholders are aware of any personal tax liabilities relating to dividends.