FreeAgent makes the mechanics of a dividend easy. Explain a bank payment as a dividend and it produces the board minutes and the dividend voucher for you. What it cannot do is check that the dividend was legal to pay in the first place, and that is where directors get caught.
Before you pay: are there profits to pay it from?
A company can only pay a dividend out of distributable profits. In law that is accumulated realised profits less accumulated realised losses: broadly, what the company has made after tax over its life, less what it has already paid out.
In FreeAgent, the figure to look at is the carried forward amount on the profit and loss report, which also appears on the Overview screen. Two cautions:
- It is only right if your books are up to date. A month of unreconciled transactions can make the number look healthier than it is.
- This year’s corporation tax has to come out of this year’s profit before it is available to pay out. Paying away the whole profit leaves nothing for the tax bill.
A dividend paid without the profits to cover it is unlawful, and a shareholder who knew or should have known has to repay it. In practice an owner director always knows, so the money ends up owed back to the company, usually as an overdrawn director’s loan account.
The paperwork a dividend needs
GOV.UK sets out the basics:
- Hold a directors’ meeting to declare the dividend.
- Keep minutes of it, even if you are the only director.
- Write a dividend voucher for each payment, showing the date, the company name, the shareholders and the amount.
Dividends are paid to shareholders in proportion to their shares, unless your company has share classes set up to do otherwise. If your spouse holds shares, they get their share of every dividend you declare.
How to record a dividend in FreeAgent
If the dividend was paid straight from the company bank account, explain the bank payment as a dividend. That is it on the bookkeeping side.
FreeAgent then creates the board minutes and a dividend voucher for you, under My Money, Dividends. You print them, fill in what is left and sign them. Do it at the time, not at the year end. The date on the minutes should be the date you actually decided to pay it.
Declared now, paid later
Sometimes a dividend is declared but the money is not taken straight away, often to clear money the director has already drawn. In FreeAgent that is a journal: debit the dividend account and credit your director loan account. The dividend then sits in your loan account as money the company owes you, or reduces what you owe it.
This is the usual way an overdrawn loan account is cleared at the year end. It only works if the profits are there to support the dividend, and the minutes and voucher still need to exist.
What the dividend costs you in tax
Dividends are taxed on you personally, through your Self Assessment return. For 2026/27 the rates are:
| Band | Dividend tax rate 2026/27 |
|---|---|
| First £500 (dividend allowance) | 0% |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
The basic and higher rates both went up by two percentage points from 6 April 2026. If you are using last year’s figures to plan, they are now too low. As an example, a director taking a £12,570 salary and £37,700 of dividends, reaching the £50,270 higher rate threshold, pays £3,999 in dividend tax: nothing on the first £500 and 10.75 per cent on the other £37,200.
How much to take as salary and how much as dividends is a separate decision, covered in our guide to salary and dividends in FreeAgent. To see what a given dividend costs in total, try our dividend and corporation tax calculator.
The mistakes we see
- Regular transfers called dividends after the event. Money taken every month and labelled as dividends at the year end, with minutes written later, is really a loan until a dividend is properly declared.
- Paying out the tax money. Taking the whole carried forward figure, then finding the corporation tax bill has nowhere to come from.
- Forgetting the voucher. FreeAgent creates it, but it is only a draft until it is completed and signed.
- Ignoring the other shareholders. A dividend goes to every shareholder of that class, not just the director who needs the money.
Take dividends with the profits, paperwork and tax planned
We check the profits are there before you pay, make sure the minutes and vouchers are right, and plan your dividends against your tax bands each year. We work with limited companies only, inside your own FreeAgent account, so there is nothing to move. Fixed monthly fees from £145 + VAT, covering your year end accounts, corporation tax return and your own Self Assessment.
Book a Free ConsultationOr see our fixed-fee packages. We work with limited companies across Bedfordshire, Hertfordshire, Buckinghamshire and Northamptonshire, and remotely throughout the UK.
Frequently Asked Questions
Yes. When you record a dividend, FreeAgent creates board minutes and a dividend voucher under My Money, Dividends. You print them, fill in the remaining details and sign them.
If the dividend was paid from the company bank account, explain that bank payment as a dividend. If it was declared but not paid, record it with a journal that debits the dividend account and credits your director loan account.
A dividend can only be paid out of distributable profits, broadly the profits the company has made after tax and not already paid out. FreeAgent shows a carried forward figure on the profit and loss report and the Overview screen. Remember the corporation tax on this year's profit has to come out of it too.
After a £500 dividend allowance, dividends are taxed at 10.75 per cent in the basic rate band, 35.75 per cent in the higher rate band and 39.35 per cent in the additional rate band.
Yes. GOV.UK says to hold a directors meeting to declare the dividend and keep minutes, even if you are the only director.