Guidance Notes – what are dividends?

Guidance Note: Dividends


A dividend is a payment a company can make to its shareholders if it has made enough profit. This Guidance Note is a practical guide to dividends and takes the reader through what a dividend is, the procedure for declaring and paying dividends, the paperwork involved (including dividend vouchers) and how a shareholder can waive their entitlement to a dividend.

A company must not pay out more in dividends than it has available in profits from current and previous financial years. There are strict rules that companies have to adhere to in the declaration and distribution of dividends and the paperwork that must be kept. This guidance note therefore looks at final and interim dividends, the board meeting required to declare a dividend, how dividend vouchers work as well as looking at why shareholders may want to waive their right to a dividend.

This guidance note has been updated as of April 2016 to reflect that the dividend tax credit has been replaced by a new tax free dividend allowance.

Note that this guidance note does not consider the general tax and accounting rules that apply to dividends. Further information can be found on HMRC’s website. It may also be necessary to seek independent tax and accounting advice.

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