Dividends

[dd456]

Hello all,

I have a quick question regarding payment of dividends.

I understand that they can only be paid out of post tax profits, but can they also be paid out of retained profits from previous years?

example

starting with £0
Year 1: Net profit £100k of which 10k paid out as dividend leaving 90k in the bank
Year 2: Net profit £100k of which 10k leaving 90k from the year plus the 90 from the previous year, i.e 180k left in the bank.

Year 3: Net loss of 100k. Can a dividend be paid from the money 80k left in the bank?

 

[Jenni384]

I understand that they can only be paid out of post tax profits, but can they also be paid out of retained profits from previous years?

Yes. Any loss will use up retained profit, so your example works, the balance available for distribution is:

Year 1: 90k
Year 2: 180k
Year 3: 180-100 = 80k

 

[dd456]

Yes. Any loss will use up retained profit, so your example works, the balance available for distribution is:

Year 1: 90k
Year 2: 180k
Year 3: 180-100 = 80k

Thanks Jenni