Dividends are one way of distributing a company limited by shares’ profits to its shareholders. To pay dividends, a company must follow certain legal requirements, one of which is the issuance of dividend vouchers.
In this guide, we’ll break down everything you need to know about dividend vouchers: what they are, why they matter, how to create them and how shareholders should pay tax on them.
Key Takeaways
- Dividend vouchers provide proof of dividend payments from a limited company to its shareholders.
- Dividend vouchers should include the company’s name, the shareholder’s name, the amount paid, and a director’s signature.
- Shareholders are responsible for paying tax on dividend income to HMRC.
What is a dividend voucher?
A dividend voucher is a formal document that records the payment of dividends a shareholder receives from a limited company. It is essentially a receipt, as it serves as proof of the transaction and includes essential details about the dividend payment.
Companies must issue dividend vouchers to the relevant shareholders when they declare a dividend, as shareholders use them to declare their dividend income, and HMRC may request them as evidence of payments during an audit or tax investigation.
These are official accounting records, so we recommend hanging onto them for at least 6 years after the end of the financial year or accounting period they were issued. For example, dividend vouchers issued in March 2025 must be kept until March 2031. Find out more about how long you should keep your company records.
How a dividend voucher should look
There’s no set format for how dividend vouchers should look. However, they should contain company information, such as the name, registered office address, and company number. They also need the shareholder’s name and address, the dividend amount, and the signature of a company director to validate them.
Here is the general format a dividend voucher would follow.
How are dividends paid?
In most small businesses, dividends are often paid out on a regular basis, providing shareholders with a consistent income in return for their investment in company shares. They may also be paid out on a more ad hoc basis, depending on the nature and success of the company. You can find out other ways to pay yourself from a limited company in our guide.
The amount paid in dividends depends on the company’s available profits and, in simple terms, the proportion of shares each person owns. For instance:
- If you’re the sole shareholder and own a single share, you are entitled to 100% of the distributable profits as dividend payments.
- In a company with four equal shareholders, each holding one share, each person would receive 25% of the available profits as dividend payments.
It should be noted that some companies have multiple classes of shares with different dividend rights, so sometimes the dividend paid to a shareholder doesn’t always exactly match the proportion of shares they own.
Most companies issue dividend payments directly to shareholders via bank transfer, cheque, or possibly even in physical cash.
Do companies pay tax on dividends?
Dividends are distributed from post-tax profits, so companies have already been charged Corporation Tax on these earnings. Therefore, companies do not pay any additional tax when issuing dividends.
The fact companies limited by shares can issue dividends to shareholders is one of the reasons that they are more tax efficient than sole traders, business partnerships, and LLPs. (Private unlimited companies can also issue dividends, but the drawback is that there is no cap on the amount shareholders pay in the event of insolvency.)
How much tax do shareholders pay on dividends?
Shareholders do not need to pay any tax on dividend income that falls within the shareholder’s annual Personal Allowance, which is £12,570 for the 2024/25 tax year (this amount is smaller for those whose income is over £100,000 per year). Additionally, all shareholders are entitled to a £500 dividend allowance each year.
How much tax shareholders pay on dividends above the dividend allowance depends on their Income Tax band. To work out your tax band, add your total dividend income to your other income. You may pay tax at more than one rate.
The dividend tax rates for 2024/25 (once you go over the allowance) are:
- 8.75% if your income tax band is the basic rate
- 33.75% if your income tax band is the higher rate
- 39.35% if your income tax band is the additional rate
Here’s a calculator to help you see how much tax you must pay on dividends:
Shareholders must declare their dividend income to HMRC each year. If you already file a Self Assessment tax return, you must declare it in this by including any dividend income. Find out how to file your Self Assessment tax return here.
If you do not file Self Assessment, you must let HMRC know after the end of the tax year (5 April) and before 5 October. Find out how to do so in GOV.UK’s guide to reporting tax on dividends.
If shareholders do not declare this income, HMRC can deem the payments to be salary income. In this case, both income tax and National Insurance would be due, which would result in a higher tax charge.
Summing up
So, there you have it—your complete guide to dividend vouchers. Although they may seem like a minor part of paying dividends, they are essential in running a legally compliant limited company.
If you’re unsure about how to handle dividend vouchers or other aspects of dividend payments, consider seeking advice from an accountant to ensure everything is handled correctly.
If you’re looking to issue shares to someone so they can receive dividends, check out our Issue of Shares Service. We can complete and send you all the necessary documents, including the application letter, board resolution, written special resolution, and share certificate(s). We will also file the form SH01 at Companies House and, if required, file a confirmation statement to report the recipients of the new shares publicly.
Take a look at other Rapid Formations blogs for more information on accounting and tax. If you have any questions about this topic, please leave a comment below.
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