Paying myself a dividend from ltd company
In a simple case as the sole UK resident director/shareholder of a company, with that company as your only income, you are usually best paying yourself a salary of the maximum tax free amount allowed under your tax code (~£11k for most people at present).  On this you will have to pay some employer and employee National Insurance (NI) contributions (totalling around £1000). Your salary/employer NI counts as an expense, so that is taken off the company profits.  You then pay corporation tax on the remainder (20%).  The first £5k you take as dividends is tax free, the remainder at a lower tax rate than the equivalent combined income tax/NI (starting at 7.5% instead of 20% tax plus employee plus employer NI), giving a significant saving compared to salaried income even after corporation tax. To declare and pay the tax, you would need to complete a self-assessment tax return.  Your company will also need to file a return. The Contractor UK website, although aimed at IT contractors, has some very useful information on operating Ltd companies. That said, finances are rarely that simple so I would concur with the recommendation you engage an accountant, which is a tax-deductible expense. manage the company properly. If you aren't much aware about company rules and regulation or tax matters, get an accountant so that you don't mess up later. better off paying my self a dividend of 100% profit or as an employee? That depends on how much salary you intend to pay yourself, your dividend or how much business expenses you will incur while running the business.  Generally speaking you are better off paying your self a minimum salary and pay the rest as dividends. But check out the dividend tax and the income tax you might need to pay and compare which situation you are better off. If you have a partner, using the dividend way will reduce your NI outgoes. ethical and legal? Ethically the dividend way might burn your conscience but it is perfectly legal way of doing things. Adding to webdevduck's answer: Before you calculate your profits, you can pay money tax-free into a pension fund for the company director (that is you). Then if you pay yourself dividends, if you made lots of profit you don't have to pay it all as dividends. You can take some where the taxes are low, and then pay more money in later years.   What you must NOT do is just take the money. The company may be yours, but the money isn't. It has to be paid as salary or dividend. (You can give the company director a loan, but that loan has to be repaid. Especially if a limited company goes bankrupt, the creditors would insist that loans from the company are repaid).  After a bit more checking, here's the optimal approach, perfectly legal, expected and ethical:  You pay yourself a salary of £676 per month. That's the point where you get all the advantages of national insurance without having to pay; above that you would have to pay 13.8% employers NI contributions and 12% employee's NI contributions, so for £100 salary the company has to pay £113.80 and you receive £88.00. Below £676 you pay nothing.  You deduct the salary from your revenue, then you deduct all the deductible business costs (be wise in what you try to deduct), then you pay whatever you want into a pension fund. Well, up to I think £25,000 per year.  The rest is profit. The company pays 19% corporation tax on profits. Then you pay yourself dividends. Any dividends until your income is £11,500 per year are tax free. Then the next £5,000 per year are tax free. Then any dividends until income + dividends = £45,000 per year is taxed at 7.5%. It's illegal to pay so much in dividends that the company can't pay its bills.  Above £45,000 you decide if you want your money now and pay more tax, or wait and get it tax free. Every pound of dividend above £45,000 a year you pay 32.5% tax, but there is nobody forcing you to take the money. You can wait until business is bad, or you want a loooong holiday, or you retire. So at that time you will stay below £45,000 per year and pay only 7.5% tax.
I believe so (that you can, not that you are greedy) I run my own business and, generally speaking, am 'charging' my company 40p per mile as per the quote above. I did not know about the ability to claim the shortfall, as it is not relevant to me, but it makes perfect sense and I'm sure that a phone call to HMRC will help you understand how to claim.  As for the greedy question - personally I think that laws are there for a reason (both ways) so if there's money to be claimed - there's no reason not to do so, unless of course the hassle is greater than the potential gain. One last note - not sure exactly what the rules around this are, but I know that the allowance is not applicable for one's general commute and so if you're travelling to the same place over 40% of the time for more than two years you are no longer allowed to claim these miles. "I think the £35K band applies to the ""dividend income"" not the ""dividend paid to you"", and so you would only actually get £31.5K (90% of £35K) in your pocket before the next tax band kicked in. If your company will only supplying large VAT registered entities, then register for VAT yourself and elect the Flat Rate scheme - depending on your area of business, given that you have no expenses, your company will get an extra 7% - 14% on its income for free. Your clients won't care that you charge them VAT because they'll claim it back. Finally, depending on what your company is for, beware of the dreaded IR35" As an ordinary shareholder, yes you are protected from recourse by the debtors. The maximum amount you can lose is the amount you spent on the shares. The rules might change if you are an officer of the company and fraud is alleged, but ordinary stockholders are quite well protected. Why are you worried about this? IANAL (and nor am I an accountant), so I can't give a definitive answer as to legality, but AFAIK, what you propose is legal.  But what's the benefit?  Avoiding corporation tax? It's simplistic – and costly – to think in terms like that. You need to run the numbers for different scenarios, and make a plan.  You can end up ahead of the game precisely by choosing to pay some corporate tax each year. Really! Read on. One of the many reasons that self-employed Canadians sometimes opt for a corporate structure over being a sole proprietor is to be able to not pay themselves everything the company earns each year. This is especially important when a business has some really good years, and others, meh.  Using the corporation to retain earnings can be more tax effective. Example: Imagine your corporation earns, net of accounting & other non-tax costs except for your draws, $120,000/year for 5 years, and $0 in year 6.  Assume the business is your only source of income for those 6 years.  Would you rather: Pay yourself the entire $120,000/yr in years 1-5, then $0 in year 6 (living off personal savings you hopefully accumulated earlier), subjecting the $120,000/yr to personal income tax only, leaving nothing in the corporation to be taxed? Very roughly speaking, assuming tax rates & brackets are level from year to year, and using this calculator (which simplifies certain things), then in Ontario, then you'd net ~$84,878/yr for years 1-5, and $0 in year 6. Overall, you realized $424,390. Drawing the income in this manner, the average tax rate on the $600,000 was 29.26%. vs. Pay yourself only $100,000/yr in years 1-5, leaving $20,000/yr subject to corporation tax. Assuming a 15.5% combined federal/provincial corporate tax rate (includes the small business deduction), then the corp. is left with $16,900/yr to add to retained earnings in years 1-5. In year 6, the corp. has $84,500 in retained earnings to be distributed to you, the sole owner, as a dividend (of the non-eligible kind.) Again, very roughly speaking, you'd personally net $73,560/yr in years 1-5, and then on the $84,500 dividend in year 6, you'd net $73,658.  Overall, you realized $441,458.  Drawing the income in this manner, the average tax rate on the $600K was 26.42%. i.e. Scenario 2, which spreads the income out over the six years, saved 2.84% in tax, or $14,400. Smoothing out your income is also a prudent thing to do. Would you rather find yourself in year 6, having no clients and no revenue, with nothing left to draw on? Or would you rather the company had saved money from the good years to pay you in the lean one? Each way you go is a little bit of a gamble.   Owning equity in the company is best in situations where you can trade and sell that equity, or where the dilution of your royalty product would affect your returns, or if you can maintain a certain equity stake without working at the company or if you can hold out on taking equity to reinvest profits for the purposes of growth.   The royalty is best in situations where you're getting a portion of the gross, since you get paid as a creditor, no matter how the company is performing, or if you intend to collect royalties after you leave the company. Now for your situation: if your royalties are fluctuating with profit instead of gross and your equity is tied to your continued partnership and not subject to potential growth... then they're pretty much both workarounds for the same thing, you've removed the particular advantages for each way of receiving payment. If the company ever does buy out or go public, how much of your additional X earning a month would you have to then re-invest to get an equity stake?  And for royalties, if another developer came aboard, or your company bought another company, how much would this dilute your IP contribution? So, aside from the gambling nature of the issue, I'm not sure your tax calculation is right.  You can take equity profit as dividend, as long as you're collecting a sufficient salary (this prevents a business from declaring all profits as a dividend).  This would put those profits into a different tax bracket, 15% capital gains. Or if all profits are equitably split, you could take part as salary, part as dividend.  As well, as someone who's making active income off of their IP, not passive income, you're supposed to file a Schedule C, not a Schedule E, so your royalties would include your self employment taxes.  The schedule E is for royalties where the author isn't actively in the field or actually self employed in that area, or if you own royalties on something you didn't create.  Should you keep the royalties then go to another job field or retire then your royalties could go on a Schedule E.  Now, a tax advantage may exist on a Schedule C if you can write off certain health and business expenses reducing your income that you can't on a Schedule E, though it'd probably be difficult to write off more than the adjusted self employment cost savings of a Schedule E. "Google is a poor example since it doesn't pay a dividend (and doesn't expect to), so let's use another example with easy numbers. Company X has a stock price of $100, and it pays a quarterly dividend (many companies do). Let's assume X pays a dividend of $4. Dividends are always quoted in annual terms, as is dividend yield. When a company says that they pay ""quarterly dividends,"" it means that the company pays dividends every quarter, or every 3 months.  BUT, if a company has a $4 dividend, you will not receive $4 every quarter per share. You will receive $4/4 = $1 per share, every quarter. So over the course of a fiscal year, or 4 quarters, you'll get $1 + $1 + $1 + $1 = $4 per share, which is the annual dividend.  The dividend yield = annual dividend/stock price. So in this case, company X's div. yield will be $4/$100 * 100 = 4%. It's important to note that this is the annual yield. To get the quarterly yield, you must divide by 4. It's also important to note that the yield fluctuates based on stock price, but the dividend payment stays constant unless the company states an announcement. For a real world example, consider Intel Corp. (TICKER: INTC) http://finance.yahoo.com/q?s=INTC The share price is currently $22.05, and the dividend is $0.84. This makes the annual yield = $0.84/$22.05 * 100 = 3.80%. Intel pays a quarterly dividend, so you can expect to receive $0.21 every quarter for every share of Intel that you own. Hope that clears it up!" "The answer is partly and sometimes, but you cannot know when or how. Most clearly, you do not take somebody else's money if you buy shares in a start-up company. You are putting your money at risk in exchange for a share in the rewards. Later, if the company thrives, you can sell your shares for whatever somebody else will pay for your current share in the thriving company's earnings. Or, you lose your money, when the company fails. (Much of it has then ended up in the company's employees' pockets, much of the rest with the government as taxes that the company paid).  If the stockmarket did not exist, people would be far less willing to put their money into a new company, because selling shares would be far harder. This in turn would mean that fewer new things were tried out, and less progress would be made. Communists insist that central state planning would make better decisions than random people linked by a market. I suggest that the historical record proves otherwise. Historically, limited liability companies came first, then dividing them up into larger numbers of ""bearer"" shares, and finally creating markets where such shares were traded.  On the other hand if you trade in the short or medium term, you are betting that your opinion that XYZ shares are undervalued against other investors who think otherwise. But there again, you may be buying from a person who has some other reason for selling. Maybe he just needs some cash for a new car or his child's marriage, and will buy back into XYZ once he has earned some more money.  You can't tell who you are buying from, and the seller can only tell if his decision to sell was good with the benefit of a good few years of hindsight.  I bought shares hand over fist immediately after the Brexit vote. I was putting my money where my vote went, and I've now made a decent profit. I don't feel that I harmed the people who sold out in expectation of the UK economy cratering. They got the peace of mind of cash (which they might then reinvest in Euro stocks or gold or whatever). Time will tell whether my selling out of these purchases more recently was a good decision (short term, not my best, but a profit is a profit ...)  I never trade using borrowed money and I'm not sure whether city institutions should be allowed to do so (or more reasonably, to what extent this should be allowed). In a certain size and shortness of holding time, they cease to contribute to an orderly market and become a destabilizing force. This showed up in the financial crisis when certain banks were ""too big to fail"" and had to be bailed out at the taxpayer's expense. ""Heads we win, tails you lose"", rather than trading with us small guys as equals! Likewise it's hard to see any justification for high-frequency trading, where stocks are held for mere milliseconds, and the speed of light between the trader's and the market's computers is significant." Another person, not a shareholder or director, will be treated as when a bank loans you money. You are loaning out money and you are sort of getting interest income out of it or some other benefit, which needs to be put down in you company's annual return. Full source on the HMRC website. But for a shareholder or director is different matter. Check the HMRC source for sure and check with your accountant, if you have one. If you owe your company money You or your company may have to pay tax if you take a director’s loan. Your personal and company tax responsibilities depend on how the loan is settled. You also need to check if you have extra tax responsibilities if: If the loan was more than £10,000 (£5,000 in 2013-14) If you’re a shareholder and director and you owe your company more than £10,000 (£5,000 in 2013 to 2014) at any time in the year, your company must: You must report the loan on your personal Self Assessment tax return. You may have to pay tax on the loan at the official rate of interest. If you paid interest below the official rate If you’re a shareholder and director, your company must: You must report the interest on your personal Self Assessment tax return. You may have to pay tax on the difference between the official rate and the rate you paid. Do you realise that the examples you have given are for stock splits not for dividends, that is why the date payable is before the ex-date for the split. The payments for the split occur on 30th June and the first day the stock trades with the new split is on the next trading day, being the ex-date, 1st July. "Dividends telegraph that management has a longer term focus than just the end of quarter share price.  There is a committment to at least maintain (if not periodically increase) the dividend payout year over year.  Management understands that cutting or pausing dividends will cause dividend investors in market to dump shares driving down the stock price.   Dividends can have preferential tax treatment in some jurisdictions, either for an individual compared to capital gains or compared to the corporation paying taxes themselves.  For example, REITs (real estate investment trusts) are a type of corporation that in order to not pay corporate income tax are required to pay out 95% of income as dividends each year.  These are not the only type, MLP (master limited partnerships) and other ""Partnership"" structures will always have high dividend rates by design. Dividends provide cash flow and trade market volatility for actual cash.  Not every investor needs cash flow, but for certain investors, it reduces the risks of a liquidity crisis, such as in retirement.  The alternative for an investor who seeks to use the sale of shares would be to maintain a sufficient cash reserve for typical market recessions." Dividends are a form of passive income. "If you are using software like QuickBooks (or even just using spreadsheets or tracking this without software) use two Equity accounts, something like ""Capital Contributions"" and ""Capital Distributions"" When you write a personal check to the company, the money goes into the company's checking account and also increases the Capital Contribution account in accordance with double-entry accounting practices. When the company has enough retained earnings to pay you back, you use the Capital Distributions equity account and just write yourself a check. You can also make general journal entries every year to zero out or balance your two capital accounts with Retained Earnings, which (I think) is an automatically generated Equity account in QuickBooks. If this sounds too complex, you could also just use a single ""Capital Contributions and Distributions"" equity account for your contributions and distributions." "A dividend is a cash disbursement from the company.  The value of the company goes down the same amount of the dividend, so it is analogous to having money in a savings account and taking a withdrawal every month.  Obviously you are going to have less in the end than if you just kept the money in the account. suppose that I own 10 different stocks, and don't reinvest dividends, but keep them on account, and each month or two, as I add more money to invest, either in one of my existing stocks, or perhaps something new, I add whichever dividend amount is currently available in cash to my new purchase, would this strategy provide the same results? Roughly, yes.  Reinvesting dividends is essentially buying more stock at the lower price, which is a net zero effect in total balance.  So if you invested in the same stocks, yes you'd be in the same place.  If you invested in different stocks, then you would have a performance difference depending on what you invested in. The risk is the temptation to take the cash dividend and not reinvest it, but take it in cash, thereby reducing your earning power. That is, is there some particular reason that the brokers are recommending automatically reinvesting dividends as opposed to reinvesting them manually, perhaps not always in the same item? I'd like to think that they're looking after your best interest (and they might be), but the cynical part of me thinks that they're either trying to keep your business by increasing your returns, or there's some UK regulation I'm not aware of that requires them to disclose the effect of reinvesting dividends.    £100 invested in the UK stock market since 1899 would have grown into just £177 after adjusting for inflation. This figure seems ludicrous to me.  I haven't actually measured what the historical returns on the ""UK market"" are, but that would mean an annualized return (adjusted for inflation) of just 0.5%.  Either UK stocks pay a ridiculous amount of dividends or there's something wrong with the math. EDIT I still have not found a definitive source for the real UK market return, but according to this inflation calculator, £100 in 1899 would equate to almost £12,000 today, for an average inflation rate of 4.14 percent, which would put the CAGR of the UK market at about 4.9%, which seems reasonable.  The CAGR with dividend reinvestment would then be about 9.1%, making dividend reinvestment a no-brainer in the UK market at least." You could hold a long position in some company XXXX and then short your own shares (assuming your broker will let you do that).  The dividend that would have gone to you would then go to whoever is holding the shares you short sold.  You just don't get a dividend.  If you're going to short in a smart way...  do it on a stock you otherwise believe in, but use it to minimize the pull-backs on the way up. They're not going to look very hard at the asset value (except for actual cash in the bank), which doesn't bear much relationship to the real value of the company. More likely they will look at the last three years' earnings and choose a target P/E ratio based on that. The owner's share depends entirely on how much of the business they choose to sell. If the business is worth $60M and they want to raise $20M for themselves, then that means selling 33% of the company. If they want to raise $20M for the business as well, then that means selling half the company and retaining ownership of the other half, which is now worth $80M because of the cash infusion. But many stock exchanges will have minimum requirements for the percentage of the shares that are trading freely, so they will have to sell at least that much.