Limited company dividends

Rapid Formations | October 2026

Limited companies pay dividends as a way of sharing profits with shareholders. As a shareholder of a limited company, dividends are one of the compliant ways you can pay yourself an income. You can only pay a dividend if your company has enough profits to cover it. There are formal processes for paying dividends, which often include seeking director or shareholder approval and issuing dividend vouchers. You must tell HMRC about dividend income of more than £500 and pay any tax you owe.

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When you set up a limited company, you’ll most likely want to issue dividends to yourself, in addition to your regular director’s salary. But what are dividends? How do they work? What’s the proper process for paying them? And do you have to pay tax on dividend income?

In this blog, we’ll answer all of these questions to help you get to grips with this important aspect of running a limited company.

Key takeaways

• Use dividends to compliantly take income from company profits, either on their own or alongside a director’s salary.

• Never pay more than you have in available profits or take a greater percentage than your shares entitle you to.

• As a director, you’re responsible for following the proper process to approve and record dividends as well as avoiding unlawful payments.

• Report dividend income to HMRC (usually through Self Assessment) and pay any tax you owe after applying your Personal Allowance and dividend allowance.

What are dividends?

A dividend is a form of profit distribution used by companies limited by shares. For example, directors will usually reward eligible shareholders with cash dividends when the company generates profit and accrues retained earnings.

In most small companies, dividends are issued on a regular basis. This provides shareholders with a steady stream of income in exchange for their investment in the company shares.

If you’re the sole shareholder of a small business, dividends can be a simple way to pay yourself from your limited company. This is often done in combination with a director’s salary.

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