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If you own a limited company, you’ve probably heard that dividend income is one of the most tax-efficient ways to get paid. Unlike a salary, there’s no National Insurance to worry about – sounds like a dream, right? ✨
But here’s the million-dollar question: is dividend income taxable? The answer is yes, but there’s no need to panic! We’ll break down how much tax you’ll owe, how much you can keep tax-free and a few smart tips to help you stay on top of your dividend tax bill.
Before we get to the tax part, let’s cover the basics. A dividend is a payout you might get if you own shares in a profitable limited company. To make it happen, the company’s directors need to gather, crunch some numbers and “declare” how much goes to the lucky shareholders. 🤝
But here’s the catch – dividends only get paid if the company’s raking in profits 📈and they’re handed out after the taxman takes his share of Corporation Tax and VAT. This is what makes dividend income a tax-efficient way to pull income from your company.
Short answer: yes, you need to pay tax on dividends, but for the 23/24 tax year, you get a tax-free dividend allowance. This means you can receive up to £1,000 in dividend income without paying tax. Next year (24/25), this allowance drops to £500. 📉 After that, you’ll pay tax on the rest, but the rate is still lower than regular income tax.
Unsure if you need to file a tax return or report your dividend income? Don’t stress! Get a professional, vetted accountant to help guide you in the right direction. Plus, they can help you with your tax efficiency. Book your tax consultation today for a low, one-off fee.
Once your dividend income exceeds the £1,000 tax-free allowance, you’ll need to pay tax based on all your income – like your salary, other dividends and any extra earnings.
| Annual Salary | Tax bracket | Tax rate |
| Up to £12,570 | Personal allowance | 0% |
| £12,571 – £50,270 | Basic rate | 8.75% |
| £50,271 – £125,140 | Higher rate | 33.75% |
| £125,140+ | Additional rate | 39.35% |
For example, if you’re a basic-rate taxpayer and you take £10,000 in dividends from your limited company, after using up your £1,000 tax-free allowance, you’ll pay 8.75% tax on the remaining £9,000 – that’s £787.50 in tax.
If you’re earning dividends from investments, here’s how it works:
And remember, keeping track of your dividend income now can save you a headache when it’s time to file your taxes.
Check out our dividend tax calculator if you want to work out what you might owe.
You can either call HMRC on 0300 200 3300 to take this tax from your salary or pension, or include it on your Self Assessment tax return.
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 8.75%, 33.75%, and 39.35%.
The numbers look strange but the reason is simple: the company paying you those dividends already paid corporate tax, so you’re paying the difference.
This is mostly relevant if you own your company and you’re trying to decide the best way to pay yourself: dividends or salary. Keep in mind that if you pay from your 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 any dividend tax on the first £500 you make in dividends.
You pay 8.75% on the next £2,500
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.
As a limited company director or shareholder, the way you pay tax on dividend income depends on how much you earn:
Don’t forget! You’ve got until the tax return deadline (January 31st) to pay up. Miss the deadline and you could face penalties, so get it sorted on time! 🚨
Is dividend income taxable? Yes, but it’s still one of the most tax-efficient ways to draw income from a limited company. The key is knowing the rules, using your allowances and filing on time to avoid any penalties. If you’re not sure where to start, we can help you get it sorted.
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