How to pay yourself a dividend, properly

Published 10 August 2026 · updated 9 September 2026 · 5 min read

A dividend is a distribution of profit to shareholders. It is not a salary, it is not a transfer, and it is not whatever is left in the bank account at the end of the month.

The one rule that matters

A dividend can only be paid out of distributable profits — accumulated realised profits less accumulated losses. Cash in the bank is not the test. A company can be flush with cash from a VAT payment it has yet to hand over and have no distributable profit at all.

A dividend paid when there were not the profits to support it is unlawful, and it can be reclaimed from the shareholder who received it, sometimes years later when the company is in difficulty.

The paperwork

• Check the accounts show sufficient distributable profits at the date of the decision.
• Hold a directors' meeting — or, for a sole director, record the decision — and minute it.
• Issue a dividend voucher to each shareholder showing the company, the date, the shareholder and the amount.
• Pay it in proportion to holdings within a share class. You cannot pay one ordinary shareholder more per share than another.

This is fifteen minutes a quarter. It is also the difference between a dividend and a director's loan when HMRC asks.

Salary and dividends together

Most owner-directors take a mix, because the two are taxed differently and interact with National Insurance and pension contributions. The right balance depends on profit, your other income and the current rates — it is a question for an accountant with your numbers, and the answer changes between tax years.

If you took it without the paperwork

Money taken that is neither salary nor a properly declared dividend is a director's loan. That has its own consequences, including a corporation tax charge if it is still outstanding past the deadline. It is fixable, but it is much easier to do the minute in the first place.