We’re going to show you the process of dealing with dividends on FreeAgent.

We’re assuming simple one shareholder businesses here – your typical freelancer or contractor limited company.

FreeAgent Accountants

The first step is to make sure there are sufficient profits in your company to cover your dividend.

Check your FreeAgent is up to date – raise all sales invoices, add all ‘out of pocket’ expenses and make sure all the bank explanations are up to date. Then do a review of your Balance Sheet and Profit and Loss to make sure there are no obvious issues or miscodings.

Once you are happy with your FreeAgent it’s time to see what the available profits are. The best place for this is to go to “Accounting” , “Reports” , “Profit and Loss” and on the right hand side select the yearly drop down and choose “Current Year to Date”.

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Check your Profit and Loss looks ok and then scroll to the bottom which looks like the below:

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The operating profit is the pre-corporation tax profit, then FreeAgent estimates the corporation tax. Next it has any dividends that have already been paid in the current year, then any adjustments to the profit and loss through journal entries (usually done by your accountant).

This gives you the retained profit in the current period. The retained profit brought forward from the prior year is added to this which gives a total right at the bottom which is your “retained profit carried forward” or “distributable reserves”.

This is the maximum amount of dividend your company can afford to pay you (as dividends can only be paid out of retained profits according to company law).

So in this case the max dividend would be £11,665. You should also consider what income and costs you are expecting for the business in the coming weeks / months and factor in some ‘slack’ for these i.e. we wouldn’t normally recommend taking out all of the retained profits.

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The next step is to consider how much dividend you want to take out from a personal perspective. Many people choose to stay under the higher tax band as any dividends above the higher tax band will incur personal tax.

You can read our guide here which outlines the optimum salary and dividend levels for the 2015/16 tax year.

Once you have decided how much dividend to pay, then you can make the payment and when it appears on FreeAgent when you are next explaining your bank transactions you explain it as “Money Paid to User” , “Dividends”.

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This dividend can then be accessed through “My Money” , “Dividends”

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This section also very handily gives you a total cash and total gross dividends figure for the tax year as well as the dividend tax credit.

To generate the dividend paperwork simply click on the link for that dividend…

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…and the page will open up with a set of minutes which you can print out , sign and file away.

There you have it !