Your first £2,000 from dividends is tax-free
£1,000 of your dividends will be taxed at 7.5%: £75
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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 in dividends and £29,000 in other income (this can be salary, rent, etc.).
You don’t pay income tax on the first £12,500 that you make in other income (this excludes dividends).
You pay 20% on the first £16,500 after the personal allowance.
You don’t pay any dividend tax on the first £2,000 you make in dividends.
You pay 7.5% on the next £1,000
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.
You’re not alone. If you’ve got a question about tax we’ve probably heard it before and have an answer, or we can walk you through what to do.
Most people do not need to file a Self Assessment because they are taxed at source. But there are a few reasons you may need to complete a tax return:
Check out more reasons you may need to submit a Self Assessment
When it comes to Self Assessment mistakes, we’ve seen them all. Here are a few you’ll want to avoid:
Read more about these and other mistakes you can avoid
The UK tax year for individuals starts April 6th and ends April 5th of the following year. From then, you have until January 31st to complete your online tax return for the previous tax year.
If you’re a company director, you’re probably wondering which option is better: paying yourself a salary or dividends.
The best solution is to pay yourself a minimum salary so you qualify for National Insurance credits, and the rest as dividends.
This is because for salary you’ll have to pay both the employee’s (yours) and the employer’s (your own company) NI contributions.
When you pay yourself dividends, you get an additional tax-free dividend allowance (£2,000) plus you’re exempt from additional NI contributions.
ISAs stand for Individual Savings Accounts. They’re meant to encourage people to save more.
How they work:
Figuring out how much tax you owe on your dividends is hard.
Filing a personal tax return without making a mistake is even harder.
At TaxScouts, we do it for you online, fast, and for just £119, all in.
And we mean a few. After a couple of minutes of answering questions online we’ll have everything we need to start working on your tax return.
That’s right, you’ll be matched with a real accountant who is best suited to prepare your return. Plus, they’re on hand for questions whenever you need.
Once you’ve signed off your return, your TaxScouts accountant will file your return online with HMRC. That’s it! We told you it was simple.