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Year end Dividends and Bonuses

Before its year end, a limited company should consider year end dividends or bonuses. Year end dividends can be used to clear overdrawn loan accounts or be included in accounts for commercial reasons. Bonuses are sometimes reserved in accounts to reduce corporation tax or to reward key employees.

H.M. Revenue & Customs can now demand to see evidence that these were considered by the Directors before the year end. Therefore if a company wants to declare dividends or bonuses it is important that it has a meeting of directors and takes minutes of what is discussed and agreed - we can supply a template to aid with this, email Prime here.

Dividends used to clear overdrawn loan accounts should be actually paid before the year end. If considering bonuses it is not necessary to decide the amount of the bonuses at this stage, this can be agreed later when the profits are known; however the potential recipients should be aware that a bonus is due and the basis of calculation.

Not all companies are entitled to pay dividends; the company needs to have sufficient retained profits to cover any dividends paid. Dividends are also payable to all shareholders unless a formal waiver is obtained.

There are different tax and accounting consequences of declaring either a dividend or bonus, if you need further information or advice please do not hesitate to contact Prime here.

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