Tax on Dividends

Tax on Dividends

This blog provides an overview regarding tax on dividends and is based on the HMRC web site https://www.gov.uk/tax-on-dividends.

Tax on Dividends

Overview on Tax on Dividends

You may receive a dividend payment if you own shares in a company. However, you do not pay tax on the first £5,000 of dividends you receive in any tax year (from 6th April of one year to 5th April the following year).

Above this allowance the tax you pay depends on which Income Tax band you are in. Add your income from dividends to your other taxable income when working this out. You may pay tax at more than one rate.

Tax band Tax rate on dividends over £5,000
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

HM Revenue and Customs (HMRC) have examples of how your tax is worked out if you are over the dividend allowance.

Dividends that fall within your Personal Allowance do not count towards the £5,000 dividend allowance.

How you pay tax on dividends

How you pay depends on the amount of dividend income you got in the tax year.

Less than £5,000

You do not need to do anything or pay any tax.

Between £5,000 and £10,000

Tell HMRC by:

Over £10,000

You will need to fill in a Self Assessment tax return.

If you do not usually send a tax return, you need to register by 5 October following the tax year you had the income.

You will then receive a letter telling you what to do next after you have registered.

Tax on dividends before 6 April 2016

There were different rules for tax on dividends before 6 April 2016.

Dividend tax rates

The tax you pay depends on which Income Tax bands your dividends are in.

Add your other taxable income to your dividends to work out the band they are in. You may pay tax at more than one rate.

Tax band Effective dividend tax rate
Basic rate (and non-taxpayers) 0%
Higher rate 25%
Additional rate 30.56%
Additional rate – dividends paid before April 2013 36.11%

Work out what you owe

You should have received a dividend voucher. This usually shows:

  • the dividend amount
  • a ‘tax credit’ – this is one-ninth of the dividend

Work out the tax you owe by multiplying the dividend amount by the effective tax rate. Ignore the tax credit.

How you pay tax

If you need to send a tax return, fill in the ‘Dividends’ section in your return. If you do not need to send one then contact the helpline.

HM Revenue and Customs (HMRC) will tell you what you owe based on what you report and the dividend tax rates.

If you require more information then please contact Stallion Accountancy Services.

About the author...

George Greer is an experienced ACCA qualified Business Owner with a demonstrated history of working in the accounting industry. He is skilled in Accounts and Finance Management, Budgeting and Business Planning with excellent knowledge of Sage and Xero Products. Strong professional with a BSc focused in Business Computing Systems from City University London.

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