A dividend is a monetary distribution that shareholders may receive from a prosperous limited business. Only limited corporations are permitted to compensate them. A solo trader cannot withdraw dividends as revenue from their firm.
To distribute dividends to shareholders, the directors of the limited business must convene to formally “declare” the monies to be disbursed.
Payment is contingent upon the company’s profitability and is deducted subsequent to Corporation Tax and VAT. Dividends are a very tax-efficient means of deriving revenue from a corporation.
Am I obligated to pay taxes on a dividend? #
Dividends are subject to a distinct tax rate compared to the majority of other income categories. Examine the chart below to ascertain your potential liabilities for the 2024/25 tax year.
Several more considerations regarding dividends include:
- No National Insurance payments are required for your income from them.
- Dividends from Equities ISA accounts are completely exempt from taxation.
- The Dividend Allowance permits you to receive your first £500 without incurring taxes.
What is the procedure for paying taxes on dividends? #
This is contingent upon your income level.
- If your income is from £1,000 to £10,000, you have the option to either submit a Self Assessment tax return or remit payment via your PAYE tax code.
- If your dividend income exceeds £10,000, you are required to submit a Self Assessment tax return.
Determine your outstanding balance #
Utilise our dividend tax calculator to determine your potential tax liability. Alternatively, visit the HMRC to review historical dividend rates.
