Could company dividend rules be changing?
The Government has announced plans to review the rules on when companies can make distributions to shareholders. Consequently, many directors are asking a simple question: could company dividend rules be changing?
As part of a wider corporate reporting overhaul announced on 6 September 2026, the Government is considering a new approach. Specifically, it may replace the existing rules on distributable profits and capital maintenance with a solvency-based regime. A consultation opened on 7 September and runs until 30 November 2026.
However, this remains only a proposal. Therefore, companies must continue to follow the current rules in full.
The current position on dividends
At present, a company cannot simply pay a dividend because it holds enough cash in the bank. Broadly, dividends must come from profits available for distribution. In addition, companies usually establish this by reference to their relevant accounts.
Directors must therefore consider accumulated realised profits and losses before they declare or pay a dividend.
Why this confuses owner-managed companies
In practice, this often creates confusion for smaller, owner-managed businesses. For example, a company might hold £100,000 in its bank account. Nevertheless, it cannot pay a lawful dividend without sufficient distributable reserves.
Equally, the opposite problem arises. A profitable company may hold adequate reserves yet lack the cash to make a sensible payment.
A possible move to solvency
The Government is now exploring whether a solvency-based approach could replace the existing system. Even so, nobody yet knows exactly how such a test would work in practice. As a result, businesses should not assume the current rules will disappear soon.
So, could company dividend rules be changing? Possibly, but not yet.
What directors should do now
Meanwhile, the practical message for directors stays straightforward. Before paying a dividend, you should:
- confirm that sufficient distributable reserves exist
- ensure the appropriate accounts support the payment
- complete the necessary company paperwork correctly
- check the company can still afford the distribution afterwards
Furthermore, directors should think about upcoming commitments. These include Corporation Tax, VAT, PAYE, loan repayments and supplier payments.
Ultimately, the rules may become simpler in time. Until the law changes, however, a healthy bank balance is no substitute for proper checks. In short, a dividend must be legally available before you pay it.
Talk to us about your dividend strategy
Could company dividend rules be changing? We will monitor the consultation closely and keep you updated. In the meantime, please contact us to review your reserves, your accounts and your dividend planning.
