When a Limited company pays dividends to its shareholders, it is best to post (allocate) these entries to a separate nominal code on Sage. Code 3102 ‘Dividends Paid’ is the best place for these dividends.
As these payments are NOT an allowable business expense but rather a share of the after tax profits, they should NOT be shown as a expense on the Profit and Loss account.
Ensure that when the dividend is entered into Sage, the VAT code must be ‘T9′ as dividends are outside the scope of VAT and should not be shown on the VAT return.
Any money introduced by a director, or paid out to a director must also be given the VAT code ‘T9′ so as to exclude it from the VAT return.