Dividend paperwork matters if you take dividends from your limited company.

In the previous episode, we looked at what dividends are, when you can legally pay them and how they interact with the director's loan account.

This time, we focus on the paperwork and documentation that should support those dividends.

Paperwork may not be your best friend, but keeping the right documents on file gives you a clear record of what happened and helps protect you if somebody later starts asking questions.

About this episode

If you run a limited company, there are rules and responsibilities that come with it.

The Companies Act applies whether you have several directors and shareholders or you are the only director and shareholder in the business.

So although the company may feel very personal to you, it still has its own legal identity and its own records to keep.

That is why dividend paperwork should not be treated as an optional extra.

Keep it on file so that if that proverbial knock on the door ever comes, you have the supporting evidence to show what happened.

“Paperwork may not be your best friend, may not be your thing, but for me, it's always a good discipline to make sure the appropriate documents are completed.”

Start by checking that you can pay the dividend

Before we get to the minutes and vouchers, we need to make sure the company can actually support the dividend.

The episode describes this as having sufficient post-tax profits or reserves.

In current legal terms, the company needs sufficient profits available for distribution.

If your company is making losses or there are not enough accumulated profits available, you cannot simply pay a dividend because there is money sitting in the bank.

That distinction matters.

Cash in the bank does not automatically mean you have profits available for dividends.

Therefore, start with up-to-date accounting records so you know where the company stands.

Digital accounting software such as Xero can make that easier because your financial information should be more current and accessible.

If you need a broader refresher on the dividend rules themselves, see our guide to dividends for company directors.

Formally declare the dividend

Once you know sufficient profits are available, the next step is to deal with the dividend formally.

That does not mean standing on a street corner with a loud hailer and announcing it to the world.

Instead, the company needs a formal internal decision.

This still applies if you are the only director and the only shareholder.

In that situation, you are simply wearing two separate hats.

“The directors are the ones who are making that decision. The shareholders are the ones receiving it.”

As director, you make the company decision.

As shareholder, you receive the dividend.

Understanding those two roles makes the paperwork much easier to make sense of.

Our guide to shareholders and directors explains those roles in more detail.

The two key pieces of dividend paperwork

For each dividend, the episode focuses on two main documents:

• board or directors' meeting minutes
• a dividend voucher

The minutes record the company's decision.

Meanwhile, the voucher gives the shareholder a record of the dividend.

Together, they create a much clearer trail than simply transferring money out of the company bank account and dealing with the paperwork months later.

1. Board meeting minutes

The first document is the record of the directors' decision to pay or declare the dividend.

The meeting can be virtual.

Even where you are the only director, you should still record the decision in the company's minutes.

The episode recommends that the minutes include:

• the date of the meeting
• who was present
• the amount or level of dividend
• confirmation that sufficient profits exist to support it

The aim is simple.

If somebody looks at the records later, they should be able to see that the directors considered the company's position and made a clear decision.

2. The dividend voucher

The second document is the dividend voucher.

Think of this as the shareholder's record or receipt for the dividend.

Current GOV.UK guidance says the voucher should show the:

• date
• company name
• name of the shareholder receiving the dividend
• amount of the dividend

The episode also suggests recording the number of shares held, which can provide additional context for your records.

Each shareholder receiving a dividend should get the appropriate voucher.

The company should then keep its own copy.

Why the paperwork is important

Without proper documentation, questions can arise about what a payment actually was.

HMRC may ask whether the dividend was legitimate and whether the company had sufficient profits available.

If a company pays dividends without the legal justification to support them, the shareholder may have to repay the money.

That becomes particularly important if the company later goes into liquidation.

If you have taken money that the company was not legally entitled to distribute, an insolvency practitioner may look closely at those payments.

So the paperwork is not there simply to keep accountants happy.

It helps demonstrate that you followed a proper process.

Clear documentation also avoids confusion

There is another practical benefit.

Clear dividend records make life easier when your accountant prepares the company accounts and when you deal with your personal tax position.

Instead of trying to work out months later whether a payment was salary, expenses, a loan repayment or a dividend, you already have the supporting documentation.

That saves time and reduces the risk of transactions being classified incorrectly.

It also links directly to the director's loan account.

If you have been taking money out of the company and the position is unclear, our guide to director loan accounts and dividends explains what can happen when the balance becomes overdrawn.

The practical dividend process

The episode gives us a straightforward process to follow.

1. Check the accounts. Make sure there are sufficient profits available to support the dividend.
2. Hold the directors' meeting. Formally make the dividend decision, even if you are the only director.
3. Record the decision. Write up and keep the meeting minutes.
4. Prepare the dividend voucher. Give the shareholder their copy and retain one for the company.
5. Pay the dividend. Complete the payment in line with the decision you have recorded.

That is the basic discipline.

Check the numbers, make the decision, document it and then make the payment.

What if you have not done this historically?

If you have paid dividends in the past without keeping the paperwork properly organised, speak to your accountant and establish what records already exist.

The important thing from this point forward is to build the process into the way you run the company.

Do not wait until the end of the year to try to remember every dividend payment and reconstruct what happened.

Instead, complete the paperwork when you make the dividend decision.

That makes the process much easier for you, your accountant and anyone else who may need to review the company records later.

Company secretarial support

You may prefer to have somebody else manage this process for you.

As the episode explains, our company secretarial support is not just about taking minutes.

It is about helping make sure the paperwork, procedures and processes around running the company are in place.

That can be useful if company administration is not something you want to manage yourself or you want reassurance that the records are being kept properly.

Common dividend paperwork mistakes

• paying dividends without first checking the company's profits
• assuming money in the bank automatically means a dividend is legal
• forgetting to formally record the directors' decision
• failing to prepare a dividend voucher
• thinking a sole director-shareholder does not need paperwork
• mixing up the director and shareholder roles
• leaving all the documentation until the year end
• failing to keep a company copy of the dividend records

A short, repeatable process prevents most of these problems.

FAQs

What dividend paperwork should a company keep?

The two main documents covered in the episode are the directors' meeting minutes and the dividend voucher. The company should also have accounting information showing that sufficient profits were available to support the dividend.

Do I need dividend minutes if I am the only director?

Yes. The company should still record the directors' decision, even where one person is both sole director and sole shareholder.

What should the dividend meeting minutes record?

The episode recommends recording the meeting date, who was present, the amount of dividend and confirmation that the company had sufficient profits to support the payment.

What goes on a dividend voucher?

The voucher should identify the date, company, shareholder receiving the dividend and amount paid. The episode also suggests recording the number of shares held.

Can a company pay dividends while making losses?

Not simply because it has cash available. The company needs sufficient profits available for distribution after considering accumulated profits, losses and earlier distributions.

What can happen if a dividend is not legal?

The payment may be challenged and the shareholder may have to repay it. The consequences can become more serious if the company later becomes insolvent.

Why keep dividend paperwork if my accountant already knows about the payment?

The paperwork records the company's decision and gives the shareholder evidence of the dividend. It also helps the accountant prepare accurate company accounts and personal tax information.

Episode Timecodes

• Why dividend paperwork is necessary - 00:00
• Keeping historic and future records - 00:19
• Companies Act rules for sole directors and shareholders - 00:41
• Why keeping documents on file matters - 00:52
• The legal process for declaring dividends - 01:11
• Checking sufficient profits - 01:33
• Using up-to-date accounts to confirm the position - 01:49
• Formally declaring the dividend - 02:06
• Directors and shareholders wearing two hats - 02:22
• Board meeting minutes - 02:40
• What the minutes should record - 03:02
• The dividend voucher - 03:02
• What the voucher should contain - 03:21
• What can happen without proper paperwork - 03:37
• Making life easier for your accountant - 04:01
• The practical dividend process - 04:01
• Preparing minutes and vouchers - 04:25
• Company secretarial support - 04:25
• Planning and preparation - 04:48

Related episodes and guides

• Dividends Explained for Company Directors
• Director Loan Account and Dividends
• Shareholders and Directors: Who Does What?

Key takeaway

Dividend paperwork does not need to be complicated.

First, check that the company has sufficient profits available.

Next, make the dividend decision formally.

Then record that decision in the minutes and prepare the dividend voucher.

Finally, keep the documents with the company's records.

“A little bit of planning, preparation is going to save you a lot of aggravation and hassle down the line.”

Plan it. Do it. Profit.

Further Support

If you need help preparing dividend paperwork or putting the right company procedures in place, you can contact us for an initial chat.

Our company secretarial support can help with the paperwork, procedures and processes involved in running your limited company.

You can also use our free online business calculators to support your wider financial planning.

For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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In last week's podcast, I looked at the situation with dividends, what they are, when you are legally allowed to make those dividend payments, and also the director's loan account. I commented on the fact that paperwork is necessary, and in this week's podcast, I'm going to go through the paperwork that's required, the documentation that you should be keeping,

and if you haven't done this historically, I certainly recommend that you do that going forward and perhaps make sure you've got on file the paperwork to support the dividends that you paid and the dividends that you may pay yourself in the future. Remember, as a company, you have regulations to be aware of and compliance, and you've got the Company's Act here, which is going to be governing how companies should be operating itself.

It makes no difference whether you are a single shareholder, single director company, the Company's Act does apply to you.

Now, paperwork may not be your best friend, may not be your thing, but for me, it's always a good discipline to make sure the appropriate documents are completed. You keep them on file, just in case that knock on the door happens, then at least you've got all bases covered. This is something we do for our clients, but more about that later on in the podcast.

A reminder on the legal rules for what's called declaring the dividends. Declaring is where you've not physically paid it. There is a legal process, there is a legal set of rules for declaring dividends, and to pay dividends you've got to follow that clear process. Ignoring the paperwork. Could, as I've done, I've seen it, lead to HMRC questioning your payments or worse, labelling them as illegal.

You're not going to go to prison, but financially, that could be quite a squeeze. Here are the essential steps. First of all, make sure your profits are sufficient to actually justify paying that dividend. Remember, if your company is making losses, it's breaking even, you cannot, legally speaking, pay out dividends.

There's got to be sufficient, what are called post-tax profits or reserves, to support that dividend payment. If you're not quite sure where you stand on that one, having up-to-date accounts through digital accounting like Xero is going to help you maintain that situation and confirm whether you can or can't.

Number two, you have to declare the dividend in a formal way. It doesn't mean you go on a street corner with a loud hailer declaring it, but internally, you've got to have a formal declaration, even if you are the sole director and shareholder of your company. The directors are the ones who are making that decision.

The shareholders are the ones receiving it. Again, if you're one of the same, there are still two separate hats you're going to be wearing. This means you need to hold a board meeting, it can be virtual, and you need to create the right documents. So what's the paperwork that you might need? Well, for each dividend that's declared, there are two key documents.

Number one is the board meeting minutes. And the minutes are a record of your decision as a director to declare that dividend, and that dividend is declared to the shareholders of the company. So companies that are limited by guarantee, charities, and the like will not be within this remit. The minute should include the date the meeting has taken place, who was present.

And again, remember this can be a virtual meeting, the amount and level of dividend, and confirmation that there are sufficient profits post-tax to cover the payment. The second document that is needed is the dividend voucher. And this voucher acts as a receipt for the payment that's made. And it's essential, I suggest, for your tax records.

Now the voucher typically includes the date the payment was made or to be made, the company name, the name of the shareholder receiving the dividend, the amount paid over, and the total number of shares held. Each shareholder should be issued with a voucher, and as the company, you should keep a copy for your own records.

Now remember folks without proper paperwork HMRC, if they ever looked at it and that landscape is getting more tight, is they could question whether you're dividends are legitimate or not. And if they're illegal, you may have to pay that money back to the company. And I've seen that happen. If for any reason, circumstances such that you have to liquidate the company, if you've overdrawn, you've taken out those dividends without legal justification, you have to pay the money back.

Secondly, it avoids confusion. Clearer documentation makes life much easier for your accountant, let's not forget them, and ensures your tax returns are up to date. So what's the practical steps? Well, firstly, check your accounts to check those levels of post-tax profits, hold your board meeting to formally declare the dividend, and again, even if you're the sole shareholder director of the company, you must still recall that decision.

Prepare the paperwork, write up the minutes, issue the voucher, and pay the dividend across. Now, if you're thinking this is something I've not historically done, but obviously check with your accountant to see if they can do that. If not, let us know, contact us. We run a company secretarial service, so it's not just taking minutes and notes, but making sure all the paperwork, procedures, and processes are there in place to deal with the running of your company.

Remember, a little bit of planning, preparation is going to save you a lot of aggravation and hassle down the line. Plan it. Do it. Profit. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

We look forward to you joining us next week for another I Hate Numbers episode.