Dividend records and company profits

A dividend is a distribution to shareholders, not an ordinary business expense for Corporation Tax. The company needs sufficient profits available for distribution and the appropriate decision and records. A healthy bank balance alone does not establish that a dividend is lawful.

Review the accounts supporting the decision, share rights and any relevant interim financial information. Keep minutes or other required decision evidence and dividend vouchers. Reconcile payments to the approved distribution and distinguish any remaining director loan balance.

Establish profits available for the proposed distribution

Review the accounts and any necessary current financial information before deciding a dividend. Cash in the bank may include loans, customer advances or funds needed for liabilities. GOV.UK explains that dividends are paid from available profits and are not deductible business costs for Corporation Tax. ^[1] Do not treat the bank balance or a profitable month alone as sufficient support for a distribution.

Ask the accountant to explain accumulated results, previous distributions and material adjustments. A management figure may be provisional or omit costs that affect available profits. Keep the supporting accounts identified with the decision so later reviewers can establish the evidence used. Avoid relying on an informal statement that the company has always paid dividends at this time of year.

Check share rights and the decision process

Identify the shareholders and rights attached to the relevant shares. Different classes or arrangements may affect entitlement. Review the articles and appropriate approvals rather than assuming directors can pay different amounts to shareholders holding identical rights simply according to personal cash needs. Any proposed waiver or unusual arrangement requires specific advice before it is used.

Record the actual decision through the required process and prepare dividend vouchers with accurate details. Keep dates, amounts and recipients consistent. Do not backdate a meeting or voucher to transform an earlier withdrawal into an apparently authorised dividend. If the original transaction was a loan or another payment, preserve that history and assess any later lawful distribution separately.

Match the payment to the approved amount

Reconcile bank payments or other settlement to the decision and shareholder records. Identify partial payments, amounts credited to accounts and unpaid balances. A director and shareholder may be the same person, but the capacity in which they receive money matters. Use Recording a director loan account to review director loan movements and avoid treating every owner transfer as an interchangeable distribution.

Check for duplicate payments or vouchers and retain a clear index by period and shareholder. If a payment is made from another group company, establish the basis rather than assuming group membership makes it the same transaction. The company approving the dividend, the shareholder entitled and the entity making a payment should be understandable from the records.

Consider cash and personal tax separately

A lawful distributable-profit assessment does not remove the need to consider the company's ability to meet obligations after payment. Review near-term cash and known liabilities, especially if trading has deteriorated. Use Director responsibilities when a business struggles where financial distress raises creditor-duty questions. Do not proceed with a distribution based on historic profits while ignoring current evidence that the company may struggle to pay debts.

The shareholder's personal tax position requires its own review. Do not assume that no company tax deduction means no tax consequence for the recipient, or that a standard personal allowance makes every dividend tax-free. Keep vouchers and payment evidence available to the shareholder's adviser and avoid giving a universal extraction recommendation without their circumstances.

For Corporation Tax record review, provide the accounts supporting the decision, share rights and proposed payment schedule. Ask for review before making an unusual or uncertain distribution. Preserve the approved records with the accounting entries and explain any later correction transparently. If a past dividend may have been improper, obtain advice on the facts and response rather than creating retrospective paperwork that misrepresents the original decision.

Resolve a payment that lacks supporting dividend records

If a bank payment has been labelled dividend but the supporting decision and profit assessment cannot be located, investigate the facts before relying on the label. Identify who authorised the payment, which shareholder received it and what records existed at the time. Ask the accountant and, where needed, a legal adviser to assess the appropriate treatment.

Do not backdate a document to make the history appear complete. Preserve the original evidence and record any corrective action transparently. Reconcile the payment with the shareholder and director accounts, and consider whether related reporting needs attention. This is a practical reason to prepare distribution records when decisions are made: reconstructing the position months later is harder and may reveal a substantive issue that paperwork alone cannot repair.

Illustrative scenario

A company receives a large customer deposit and appears cash rich. Directors consider a dividend but first review the accounts and outstanding service obligation. They do not treat the deposit as automatic distributable profit or assume that cash availability answers the legal distribution question.

Preparation checklist

• Check profits available for distribution and supporting accounts.
• Review the relevant share rights and approvals.
• Keep decision records and dividend vouchers.
• Match payments to the approved amounts and dates.