Director information hub: Dividends
Dividends are payments made to shareholders from company profits after Corporation Tax.
Dividend basics
In many small companies, the main shareholder or shareholders are normally also the directors. You must follow the rules.
A dividend is considered illegal when a company pays out more than its available profits or fails to follow correct procedures.
Dividends have two main uses:
- to reward investors in companies
- a way for directors (if they are also shareholders) to take income from their company
Before any dividends can be paid out, they must be declared and recorded formally.
They can be paid out at any time of the year.
You can only take dividends from retained company profits.
Dividends and tax
Every shareholder that receives a dividend from a company may need to declare the amount to HMRC.
If your company cannot afford to pay out dividends, but they are still taken, they are treated as a loan and must be paid back.
Dividends for directors
If you are a director and a shareholder of a company, you may receive dividends as part of your overall remuneration.
Dividends from the company should only be paid from available profits. If dividends are paid to you when the company does not have sufficient profits to support them, they will usually be treated as a director’s loan and must be repaid.
Before taking or paying dividends, you should consider obtaining professional advice to ensure the payment is lawful and appropriate.
If a company later becomes insolvent, paying unlawful dividends can have serious consequences. These include:
- being required to repay any dividends you received
- personal liability for losses suffered by the company
- director disqualification proceedings
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Updates to this page
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New edits supplied by stakeholder - August 2026
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First published.