Dividends

[Olf]

Chaps,

Something I'm struggling with at the moment...

Do dividends have to be paid out of profit in the year those profits were earnt?

[ettore]

No, you can also pay them out of retained profit and you can also pay out interim dividends before you`ve made the profit (best to be sure you are though!)

[Olf]

ettore said:

No, you can also pay them out of retained profit and you can also pay out interim dividends before you`ve made the profit (best to be sure you are though!)

Cool. Thanks. And If I were a bank I could also pay myself a mahoosive bonus and then bill Gordon.

[Eric Mc]

You CANNOT pay out a dividend if there are insufficient reserves built up in the comapny. You CAN pay an interim dividend. But you would need to be certain that the existing reserves and future commitments allow you to go ahead and pay the interim dividend.

[ettore]

Eric Mc said:

You CANNOT pay out a dividend if there are insufficient reserves built up in the comapny. You CAN pay an interim dividend. But you would need to be certain that the existing reserves and future commitments allow you to go ahead and pay the interim dividend.

Yes, a given. Perhaps I should have been clearer - you can only pay any dividend if you have the appropriate reserves. There are all sorts of things you can do with retined profits and accruals etc though.

[Eric Mc]

Within limits.

For instance, you cannot vote yourself a salary bonus but not actually pay it.
A bonus would reduce the company profits for Corporation Tax purposes - but the Revenue insists that such end of year bonuses mnust actually be paid within 9 months of the end of the financial year to make them valid entries in the accounts for which the bonuses have been posted.