Dividends can be a tax effective way to withdraw money from your limited company.

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Dividends can be withdrawn from your limited company when there are sufficient profits to do so. Before withdrawing money, it is important to understand your company's financial position to ensure there is sufficient profit after tax to take any dividends.

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​Dividends need to be declared with a minuted board meeting and a dividend voucher, and be given based on the proportion of shares held within the company. If, for example, you and your partner have 50% shares each, any dividends declared and given to you, would also need to be declared and given to your partner at the same time. The only variation on this, is if you are using alphabet shares, as this allows for some movement on the timing of dividends.

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Any dividends you take, are taxed after all other income has been dealt with on your Self Assessment Tax Return. There is a £500 tax free allowance for the 2024/25 tax year, and the rest is taxed at the following rates:

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• 8.75% on basic rate dividends (for earnings up to £50,270)

• 32.75% on higher rate dividends (for earnings up to £125,140)

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Any dividends taken are not taxed at source, like earning under payroll, but is taxed on a Self Assessment Tax Return. It is recommended that you put a percentage of your income in a savings account to prepare for the tax due on your Self Assessment. Depending on your earnings the tax bill might be a bit of a shock, certainly for the first year, with the two payments on account and balancing payment.