5 key things you should know about paying tax on dividends

If you own shares in a profit-making company, you may receive regular or occasional dividend payments. And if you run your own small limited company, most of your income might come from regular dividend payments. Whatever…

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Last Updated: 2nd January 2024

If you own shares in a profit-making company, you may receive regular or occasional dividend payments. And if you run your own small limited company, most of your income might come from regular dividend payments.

Whatever the case, dividend payments may or may not be taxable. Read on to find out when they are, how much tax is payable on dividend payments and other important facts about dividend tax. Here are five key things you should know about paying tax on dividends.

1. Some dividend income is tax-free

You don’t pay tax on dividend income until it and any other taxable income exceeds the Personal Allowance threshold. The annual standard Personal Allowance is £12,570 in the 2023/24 tax year. You don’t pay Income Tax until your income goes over the Personal Allowance threshold.  

Did you know? The Personal Allowance decreases by £1 for every £2 above £100,000 net income. And if your income is £125,140 or more, you don’t get any Personal Allowance.

2. You also get an annual Dividend Allowance

For the 2023/24 tax year, the Dividend Allowance is £1,000. You don’t pay any tax on dividend payments you receive up to that amount – it’s tax-free.

Did you know? You do not pay tax on dividend payments from shares held in ISAs (Individual Savings Accounts) and they don’t impact your Dividend Allowance.

3. Your Income Tax band determines dividend tax

Tax bandTax rate on dividends above the allowance
Basic rate 8.25%
Higher rate 33.75%
Additional rate39.35%

Need to know! Your tax band is determined by adding together all sources of taxable income that you receive, including your total dividend payments.

4. You don’t always need to report dividend payments

If the total dividend payments you receive does not exceed the Dividend Allowance for the tax year (ie £1,000 in 2023/24), you don’t need to report them to HMRC.

5. There are different ways to report taxable dividend payments

  • If you receive dividend payments worth up to £10,000 in a tax year, you can call HMRC on 0300 200 3300 (Monday to Friday: 8am to 6pm; dial +44 135 535 9022 if you live outside the UK) to report your dividend income.
  • If you’re employed, you can ask HMRC to change your tax code so that tax can be taken from your wages to account for dividend payments you’ve received.
  • Alternatively, you report taxable dividend income via your Self Assessment tax return, if you already complete and file one.
  • If your share dividends are more than £10,000, you must complete and file a Self Assessment tax return. If you’re not already registered for Self Assessment, you must do so by 5 October following the end of the tax year in which you earned taxable dividend payments. The tax year ends on 5 April every year. You register for Self Assessment via government website GOV.UK.

GoSimpleTax offers you an easier and quicker way to complete and file your tax return. It’s simple to use, offers hints and tips, enables you to store receipts for your allowable expenses and is backed up by a highly experienced support team. Try it for free now

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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