If you’re a shareholder receiving dividends, you are required to report and pay tax on this income. The amount of tax you pay depends on factors such as the total profit and your overall income for the year. While you can handle this process on your own, using professional help ensures accuracy and peace of mind.
What is a Dividend?
A dividend is a portion of a company’s profit distributed to shareholders after all expenses, liabilities, and taxes have been paid. Companies are not required to pay dividends annually—they can accumulate profits for future distribution. However, when dividends are paid, shareholders must pay tax on the dividend income.
Tax on Dividend Income in the UK
Not all dividend income is taxable. You receive a dividend allowance of £2,000, meaning you only pay tax on any dividend income over this amount. The tax rates on dividend income are as follows:
- 8.75%: Basic rate for income between £12,571 and £50,270.
- 33.75%: Higher rate for income between £50,271 and £150,000.
- 39.35%: Additional rate for income over £150,000.
Who is Responsible for Paying Dividend Tax?
The company distributing the dividends is not responsible for paying tax on them; this is the responsibility of the shareholders. The amount of tax you pay is determined by your total income, which is reported in your annual Self-Assessment. The tax-free and taxable thresholds for dividends are:
- Up to £2,000: No tax, no need to report.
- Up to £10,000: If your dividends are under this threshold, you can contact HMRC to adjust your tax code.
- Over £10,000: You are required to file a Self-Assessment tax return.
How to Report Dividend Income
Dividends are additional income that you must include in your Self Assessment. As with the Self-Assessment, you have until 31 January to file your annual return and pay tax. You must declare your total dividend income in your Self-Assessment return. The tax rate depends on your total income from all sources, not just dividend-related income.
Why Choose Professional Help for Your Dividend Tax Returns?
If you’re unsure about reporting your dividends or simply want to avoid the stress of handling it yourself, our experienced accountants can help. We’ll calculate the tax due on your dividends and assist with completing your Self-Assessment. All you need to do is pay the correct amount to HMRC. Most importantly, you can rest assured that your tax returns are done accurately, helping you avoid penalties from HMRC.
