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.
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|
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:
- contacting the helpline
- asking HMRC to change your tax code – the tax will then be taken from your wages or pension
- putting it on your Self Assessment tax return, if you already fill one in
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%|
|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
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.