Dividends and distributable reserves

Profits available for distribution

Section 830 of the Companies Act 2006 says a company may only make a distribution out of profits available for the purpose. Those are its accumulated, realised profits not already distributed or capitalised, less its accumulated, realised losses not already written off in a reduction or reorganisation of capital.

The test is cumulative. A company with a loss this year can still pay a dividend if earlier retained profits cover it, and a profitable year does not allow a dividend while past losses exceed past profits. GOV.UK's guidance for directors puts it as available profits from current and previous financial years.

Which accounts the dividend is judged on

Accounts	When they are used	What they must be
Last annual accounts	The default for every distribution (CA 2006 s836)	Prepared in accordance with the Act, apart from matters not material to the distribution, with the auditor's report made if the company is audited (CA 2006 s837)
Interim accounts	When the last annual accounts would not support the distribution (CA 2006 s836)	For a private company, accounts that allow a reasonable judgment of profits, losses, liabilities, provisions, share capital and reserves (CA 2006 s838)
Initial accounts	During the company's first accounting reference period, or before any accounts have been circulated (CA 2006 s836)	The requirements of section 839

Interim accounts for a private company

A public company's interim accounts must meet the full accounts requirements and be filed at Companies House. A private company's need only enable a reasonable judgment to be made of the amounts that matter (CA 2006 s838). Management accounts brought up to date for accruals, depreciation, corporation tax and dividends already paid in the year can meet this.

If any requirement of sections 837 to 839 is not met, the accounts cannot be relied on for the distribution (CA 2006 s836).

Worked example

For example, a company's last annual accounts to 31 March 2026 show retained profits of £30,000. Interim accounts to 30 September 2026 show a loss of £12,000 for the six months after tax. The directors want to pay £25,000 in October 2026.

The last annual accounts alone would support £30,000, but the directors know of the later loss. Interim accounts show £18,000 available, so a dividend of up to £18,000 can be paid by reference to them (CA 2006 s830; s836). A £25,000 dividend would exceed the available profits.

Unlawful dividends

A shareholder who receives a distribution made in breach of Part 23 of the Act, and who knows or has reasonable grounds to believe it breaches the Act, must repay it to the company (CA 2006 s847).

The repayment duty sits alongside any other liability, such as a director's duty to the company (CA 2006 s847(3)). A dividend that has to be repaid and is left owing can become a debt on the director's loan account. See directors' loan accounts.

Dividend paperwork

Hold a directors' meeting to declare the dividend and keep minutes, even if there is only one director (GOV.UK: taking money out of a limited company).
Pay dividends to all shareholders of the class, in line with their shares (GOV.UK).
Issue a dividend voucher for each payment showing the date, the company name, the names of the shareholders being paid and the amount (GOV.UK).
Give a copy of the voucher to each recipient and keep a copy with the company's records (GOV.UK).
Keep the accounts the directors relied on, whether the last annual accounts or interim accounts, with the minutes (CA 2006 s836).

Dividend tax for 2026 to 2027

Dividend allowance: £500 (GOV.UK: tax on dividends)
Basic rate band: 10.75% (GOV.UK)
Higher rate band: 35.75% (GOV.UK)
Additional rate band: 39.35% (GOV.UK)

The 6 April 2026 change

The ordinary and upper dividend rates rose by 2 percentage points from 6 April 2026, from 8.75% and 33.75%. The additional rate stayed at 39.35%. The change is in the Finance Act 2026 (ITA 2007 s8; HMRC technical note). The upper rate also sets the section 455 rate on loans to participators. See close companies and the section 455 charge.

Questions

Is a dividend deductible for corporation tax?

No. A dividend is paid out of profits after corporation tax, so the corporation tax for the period needs to be provided for before working out what is available.

In Accountin

In Accountin, interim figures can be prepared from the books for any period up to 18 months when the client's ledger is kept there, and the year-end accounts are checked and approved on the Year end tab.