A sole trader or partnership will be free to take “drawings” at any time and will owe tax and NI each year on profits; dividends apply only to companies and there are rules over when and how much dividend can be paid.
Dividends are payments from post -tax profits made to shareholders in proportion to their share ownership. The decision to declare dividends is controlled by the directors.
Company profits are broadly calculated by adding up all of the company’s income, and then deducting the business costs, expenses and salaries paid out. Each year a company pays corporation tax on the profits it makes. The remaining amount is available for payment to shareholders as a dividend.