by Asim Abbas
11 November 2026 
Paying dividends legally: board minutes, vouchers and illegal dividends
Paying dividends legally: board minutes, vouchers and illegal dividends
Dividends are the most common way company directors take profit, but they must be declared and paid properly.
- Dividends can only be paid from distributable profits
- Hold a board meeting and keep minutes
- Issue a dividend voucher for each payment
- Illegal dividends may be repayable
A dividend paid without enough profits is unlawful and can be reclaimed from you, and poor paperwork can lead HMRC to treat payments as salary or loans.
This guide explains the legal and tax rules for paying dividends.
Distributable profits
A company can only pay dividends out of accumulated realised profits, after Corporation Tax, less accumulated losses. Directors should check up-to-date management accounts before declaring, including tax due on this year’s profits.
The process
- Prepare management accounts showing available profits
- Directors hold a board meeting to declare an interim dividend
- Record the decision in board minutes
- Issue a dividend voucher to each shareholder
- Pay the dividend to shareholders in proportion to shares
Final dividends are recommended by directors and approved by shareholders.
Dividend tax calculator
Tax on your dividends.
What a dividend voucher shows
- Company name and number
- Shareholder name
- Date of payment
- Amount per share and total
- Class of shares
A company has retained profits of £18,000 after tax. In March, the director takes £25,000 in dividends without checking the accounts. £7,000 is unlawful. If the director knew or should have known, it can be reclaimed. HMRC may treat it as a loan, triggering a director’s loan account balance and possibly s455 tax at 35.75% if not repaid in time.
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Get a fixed-fee quoteCall 0161 531 4179Illegal dividends
A shareholder who knew or had reasonable grounds to believe the dividend was unlawful must repay it. If the company becomes insolvent, liquidators often pursue this. Directors can also be personally liable for breaching their duties.
Tax on dividends
Dividends are taxed at 10.75%, 35.75% and 39.35% in 2026/27, after a £500 allowance. Dividends are taxable when paid or, for interim dividends, when actually paid, not when declared. See our dividend tax guide.
Common mistakes
- Regular monthly drawings with no paperwork
- Not accounting for Corporation Tax due
- Paying different amounts to shareholders in the same class
- Using dividends when there are losses
See GOV.UK guidance on taking money out of a company, our director’s loan guide and our limited company accountants.
What should I do next?
Up-to-date accounts.
Board meeting.
For each payment.
Frequently Asked Questions
Can I pay dividends if my company made a loss?
Not unless there are enough accumulated profits from earlier years.
Do I need board minutes for dividends?
Yes. Dividends should be declared and minuted.
What is an illegal dividend?
A dividend paid without sufficient distributable profits.
What happens if I take an illegal dividend?
It may be repayable, and HMRC may treat it as a loan.
When is a dividend taxed?
When it is paid.
Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.
About the Author
Stephen Reynold
I’m Stephen Reynold, an accountant at Wingate Accountants. I work with sole traders and small companies, turning tax rules into clear, practical next steps.
