Quickly calculate the tax you need to pay on the dividends you received from your investments, or what is the best way to pay yourself (dividends or salary) if you’re a company director.
Tax on dividends is calculated pretty much the same way as tax on any other income.
The biggest difference is the tax rates – instead of the usual 20%, 40%, 45% (depending on your tax band), you’ll be taxed at 7.5%, 32.5%, and 38.1%.
The numbers look strange but the reason is simple: the company paying you those dividends already paid corporate tax, so in the end it should work out to a similar tax rate.
This is mostly relevant if you own your company and trying to decide what is the best way to pay yourself: dividends or salary. Keep in mind that for salary you also need to pay National Insurance.
In your case you earned £3,000.00 in dividends and £29,000.00 in other income (this can be salary, rent, etc.).
You don’t pay income tax on the first £12,500.00 that you make in other income (this excludes dividends).
You pay 20% on the first £16,500.00 after the personal allowance.
You don’t pay any dividend tax on the first £2,000.00 you make in dividends.
You pay 7.5% on the next £1,000.00
Call HMRC on 0300 200 3300 so they can change your tax code – you’ll pay the dividend tax through your salary or pension.
If you normally file a tax return, you can also pay dividend tax through it.
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