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How much dividend can I take?

Paying dividends is a more complex area than is generally realised.

Numera can advise company directors in the London area on paying dividends and how much dividend can be taken.

There is sometimes a general presumption that dividends may be paid out of any cash that happens to be in the bank account at the time. But it’s nothing like so simple as that.

The basic principles are to be found in the Companies Act 2006. In general, a private company can distribute the whole of its accumulated realised profits less its accumulated realised losses. In practice, unrealised losses have to be considered as well. Apart from statutory matters, account must also be taken of any provision of a company’s Memorandum or Articles restricting dividends.

It is a fundamental rule of law that dividends may not be paid out of capital. So, for example, a dividend based on accounts which show available profits would be ultra vires if made after subsequent losses have eliminated those profits. Directors who make an unlawful or imprudent dividend may be held personally liable to account for it to the company.

The Companies Act makes shareholders liable to repay a distribution if, at the time of the distribution, they knew, or had reasonable grounds for believing, it to be illegal.

The message here is that before declaring a dividend, the directors must be as certain as they can be that there are sufficient distributable reserves available, taking into account any corporation tax on profits earned, and losses incurred, since the last annual accounts were prepared

This may necessitate the production of reliable management accounts prepared using the same accounting policies as the annual accounts in order to give a true and fair view of profits, losses, assets and liabilities, share capital and reserves.

We can help in this area and should be pleased to discuss it with you.

If you are a company director in the London area and would like advice on paying dividends, contact Numera.

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Company details

020 7794 5757

Numera, 4th Floor Charles House, 108-110 Finchley Road, London NW3 5JJ

Numera is a trading name of Numera Partners LLP | Company Registration No. OC365787 | Place of Registration: England & Wales | Registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales.

About us

Numera is a newly established forward-thinking firm of chartered accountants, with over 25 years in experience of audit, accountancy, taxation and business advisory services.

We work with clients in a large variety of industries and sectors; from sole traders to multi-million pound turnover organisations. We aim to create and maintain a close relationship with our clients. By being so involved, we are able to identify opportunities for our clients as well as possible risks that our clients may be faced with.

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