When you operate your own limited company, there are two ways you can pay yourself – in the form of salary, or dividends. Taking dividends is a popular way of paying yourself because this is usually more tax-efficient than taking a salary.
Unsure what a dividend is? We explore what the dividends are, what the dividend tax rate is and much more in our dividend guide below.
What are dividends?
Dividends are payments made to a company’s shareholder(s). They are a distribution of profits after the deduction of business expenses, corporation tax, etc.
Quite simply, dividends are an additional (and alternative) way of paying yourself from the profits available in the company.
How do dividends work?
Each year you get a dividend allowance (£2,000 for 2021/22), which in addition to your personal allowance is tax-free. Some limited company shareholders receive a salary from the company, with the remainder of their income taken as a dividend.
Dividends do not attract National Insurance contributions. Company owners don’t need to take all available funds as dividends from their company – they can leave the money within the company and reinvest this or make use of tax planning (we would advise speaking to an accountant about this).
How do I take dividends out of my company?
The first step you will need to take is to hold a meeting with your company directors to vote on and ‘declare’ the payment of a dividend.
A record of this meeting should be held along with minutes from the meeting, even if you are the sole shareholder of your company. This should include the date and amount to be issued, the shareholder(s) present and whether any other business was discussed.
A dividend voucher must also be presented to each shareholder which outlines the dividend paid.

What is a dividend voucher?
Also known as a dividend declaration, a dividend voucher is a way to record who has received a dividend and at what point. This should include the following
- Your limited company name
- The name and address of the shareholder
- Total number or percentage of shares owned by the shareholder
- Amount of tax credit
- Dividend amount paid
- Date
- Signature of the company director
How do I distribute dividends if there are two or more shareholders?
Dividends will be distributed to shareholders according to the number and class of shares they own.
When and how often can dividends be taken?
Dividends can be paid at any time providing there are available profits. Provided there are sufficient profits available, it’s entirely up to you when and how much you pay.
Do I need to be outside IR35 to draw dividends?
Yes, you must be outside IR35 to receive dividend payments. If your contract is caught inside IR35 you will only be able to pay yourself via a salary. You can find more about being inside IR35 in our guide.

Get better clarity on dividends
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Do I pay tax on dividends?
Each year, you will get a dividend allowance, meaning, regardless of other income, all taxpayers receive the first £2,000 of dividends tax-free. This is in addition to the Personal Allowance. Below is a breakdown of the tax rates and thresholds:
Band |
Tax Rate |
Amount |
Personal allowance |
0% |
£12,500 |
Dividend allowance |
0% |
£2,000 |
Basic Rate |
7.5% |
£14,500 – £50,000 |
Higher Rate |
32.5% |
£50,001 – £150,000 |
Additional Rate |
38.1% |
£150,001 + |
Salary or dividends: how should I pay myself?
Most contractors find that paying themselves through a combination of salary and dividends is the most tax-efficient way of drawing money from their limited company. Though this will vary depending on your circumstances, it’s worth investigating the possibilities to find a combination which works for you.
There are a number of different options available to you when drawing money from your limited company. Take a look at our guide to paying yourself for more information.
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