Dividend Waivers - Golden Rules

  • Posted on: 27 May 2022
  • By: Rachael

Dividend Waivers

 

If you haven’t set up alphabet shares in your limited company dividends are paid at the same rate for each share according to the number of shares held. 

This doesn’t work for everyone- sometimes there’s a real business need to waive a dividend and a shareholder may want to forgo the dividend in order to retain cash in the business. 

There may be other reasons for shareholders wishing to waive their dividends, such as being pushed into a higher tax bracket. 

A dividend waiver could offer a solution to these issues. 

A waiver can only be agreed in advance of being paid, you cannot re-write history!  In all seriousness this comes under tax evasion which is illegal. 

There are three golden rules with dividend waivers 

 

1.) The value of the waiver should not exceed the retained profits after all the dividends have been paid. 

This attracts attention from HMRC, and logically doesn’t make sense. You can’t waive a dividend that could not actually be paid out. 

 

2.) The waiver must not create a tax advantage to a spouse or close family member 

This is seen as tax evasion, so none of that please!

 

3.) Don’t make a habit of it. A waiver can be for a single dividend or over a set period of time. 

Repeated waivers also attract HMRC attention. Instead consider a share restructure if this is going to be a long term change. 

 

Still want to go ahead with a dividend waiver?

 

Before you do anything I recommend you contact us to discuss. However this is the process:

  • A board meeting must be held which is minuted.  
  • Discuss the reason for which the dividends are going to be waived. A commercial reason is best, such as to invest in an asset that will benefit the company long term. Agree the length of term dividends are being waived for. I recommended a clear end date. 
  • Shareholders must make a formal ‘deed of waiver’ election prior to the dividend being declared.  This deed of waiver has to be effected by someone who is a member of the law society (AKA a solicitor) 
  • A dividend waiver form is completed by all the shareholders who are waiving their rights to the dividend. 

 

The minutes and the dividend waiver must be signed by the shareholder and signed by a witness. 

 

If you feel a dividend waiver is for you, please get in touch to discuss: [email protected]