Easy, affordable and 100% online. Learn more
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! In this guide, we’ll break down limited company dividend tax, how much you can keep tax-free, and smart tips to stay on top of your dividend tax bill.
Before we dive into tax on company dividends, 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. 📈 They’re handed out after HMRC takes their share of Corporation Tax and VAT (this is key when thinking about corporate tax dividends). It’s also what makes dividend income a tax-efficient way to pull income from your company.
Short answer: yes, you need to pay tax on company dividends, but you get a tax-free dividend allowance. This means you can receive up to a certain amount in dividend income without paying tax. The amount you do pay tax on is at a rate that’s 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 tax-free allowance, you’ll need to pay tax based on all your income – like your salary, other dividends and any extra earnings.
Dividend tax rates in the 2025/26 tax year. The dividend allowance is currently £500 👇
| Income | Tax band | 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% |
This compares very favourably to the regular income tax rates in the table below, making corporate tax dividends a smart move for business owners!
The income tax rates in the 2025/26 tax year 👇
| Income | Tax rate | Tax band |
| Up to £12,570 | 0% | Personal allowance |
| £12,571 to £50,270 | 20% | Basic rate |
| £50,271 to £125,140 | 40% | Higher rate |
| over £125,141 | 45% | Additional rate |
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.
Sign up for important updates, deadline reminders and basic tax hacks sent straight to your inbox.
"*" indicates required fields
Or see our Guides, Calculators or Taxopedia
