Why it matters
It is different from salary, repayment of a loan or a business expense. Directors need adequate financial information to support the decision, together with the required records and shareholder entitlement. The bank balance alone does not establish the amount available. The shareholder’s personal tax position should also be considered when planning payments.
A practical example
A company has cash from customer receipts, but also owes VAT, suppliers and Corporation Tax. Before paying a dividend, it needs to assess available profits after the relevant adjustments and liabilities. Some cash may need to stay in the business even if the distribution is legally possible.
A common misunderstanding
A bank transfer is not made lawful simply by describing it as a dividend in the bookkeeping software. The amount, profits, share rights and decision records matter. If a distribution is unsupported, seek advice on the actual position rather than relabelling it casually.
Sources & further reading
General information for UK readers, updated 3 November 2026. Examples are illustrative. Tax treatment depends on the facts and current rules; seek advice before making a decision.