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The dangers of Unlawful Dividends

 

Posted on 31 January 2017

The laws which govern the correct procedures for the declaration and payment of dividends are full of pitfalls for directors.

Are you aware of your duties and the risks? How can you be sure you don’t get caught out by paying unlawful dividends?

Why should you pay Dividends?

It is common practice for shareholder directors to take a minimum salary and supplement the rest of their remuneration as dividends. Why?

It is seen as a way of reducing tax costs.

As from 5 April 2016, the first £5,000 of dividend income is now received tax-free (it is worth noting that dividends received in excess of £5,000 can incur a higher tax rate than before).

There is a perceived tax benefit in extracting funds in the form of dividends rather than salary or a bonus, when income tax, national insurance contributions and corporation tax paid by the company are taken into account (in reality this benefit could be less than expected).

For more information we have created this useful guide to help you

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