The Accountancy Office

Why Limited Company Directors and Shareholders Need to Prepare Dividend Vouchers (and How to Do It) 

As a director/shareholder of a limited company in the UK, understanding dividends is crucial for ensuring compliance with tax laws and maintaining clear financial records. A key part of the dividend process is preparing dividend vouchers. In this blog, we’ll explain why dividend vouchers are necessary and guide you through how to create them. 

 

What Are Dividend Vouchers? 

A dividend voucher is a document that records the payment of a dividend to a company’s shareholder(s). It acts as a formal receipt and is an important part of your company’s records. 

When a limited company declares and pays a dividend, it must issue a dividend voucher to each shareholder receiving a payment. This applies to all dividends, whether interim or final. 

 

Why Are Dividend Vouchers Necessary? 

1. Compliance with HMRC Requirements 

HMRC requires evidence of all dividend payments. Dividend vouchers serve as this evidence, showing that the payment was a dividend and not another type of transaction, such as a director’s loan or salary. Without a voucher, you may struggle to justify payments during a tax inspection. 

 

2. Record-Keeping Obligations 

As a limited company, you are legally required to maintain accurate records of all financial transactions. Dividend vouchers help fulfil this requirement by documenting distributions made to shareholders. 

 

3. Shareholder Clarity 

Dividend vouchers ensure transparency, providing shareholders with clear documentation of the payment, the amount received, and the associated tax credit. 

 

How to Prepare a Dividend Voucher 

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide: 

Step 1: Confirm Company Profitability 

Before declaring dividends, ensure the company has sufficient post-tax profits to cover the payment. Paying dividends when there are no distributable profits could result in legal and financial complications. 

Step 2: Declare the Dividend 

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment. 

Step 3: Draft the Dividend Voucher 

Your dividend voucher should include the following details: 

          Company name: The name of the limited company issuing the dividend. 

          Shareholder details: The name and address of the shareholder receiving the payment. 

          Date of issue: The date the dividend is declared or paid. 

          Dividend amount: The gross amount of the dividend. 

          Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016). 

          Net amount: The amount the shareholder will receive after tax (if applicable). 

 Step 4: Distribute the Voucher 

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference. 

Step 5: Retain Copies for Company Records 

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits. 

 

How to Prepare a Dividend Voucher 

Creating a dividend voucher is a straightforward process, but it must include specific information to meet legal requirements. Below is a step-by-step guide: 

Step 1: Confirm Company Profitability 

Before declaring dividends, ensure the company has sufficient post-tax profits to cover the payment. Paying dividends when there are no distributable profits could result in legal and financial complications. 

Step 2: Declare the Dividend 

Hold a board meeting to officially declare the dividend. Record the decision in the meeting minutes, stating the amount of the dividend and the date of payment. 

Step 3: Draft the Dividend Voucher 

Your dividend voucher should include the following details: 

          Company name: The name of the limited company issuing the dividend. 

          Shareholder details: The name and address of the shareholder receiving the payment. 

          Date of issue: The date the dividend is declared or paid. 

          Dividend amount: The gross amount of the dividend. 

          Tax credit: The tax credit associated with the dividend (this only applies to older distributions, as the dividend tax credit was removed in 2016). 

          Net amount: The amount the shareholder will receive after tax (if applicable). 

Step 4: Distribute the Voucher 

Provide each shareholder with a copy of their dividend voucher. This can be done physically or electronically, depending on preference. 

 

Step 5: Retain Copies for Company Records 

Keep a copy of each dividend voucher in your company’s records. This ensures you have the necessary documentation for future reference or potential HMRC audits. 

 

What Happens Without Dividend Vouchers? 

Failing to prepare dividend vouchers can lead to: 

          HMRC challenging payments, potentially reclassifying them as salary or director’s loans, which could result in additional tax liabilities. 

          Difficulties in proving compliance with UK company law. 

          Confusion or disputes among shareholders regarding payment amounts and dates. 

 

Need help with dividend vouchers? 

Dividend vouchers may seem like a small administrative task, but they are vital for maintaining compliance and clarity within your limited company. By ensuring dividends are properly declared and documented, you protect your business and shareholders from potential complications. 

If you need help preparing dividend vouchers or understanding dividend compliance, our team is here to help. We offer a dividend voucher preparation service for a monthly fixed fee. 

Contact us today to ensure your company’s finances stay on the right track! 

Call us on  01386 366741 or email here and one of our advisers will be in contact.