If you have bought shares in a company and they make a profit, you will be receiving dividends regularly or occasionally. Or, if you’re the owner of a small limited company, you might receive income from regular dividends.
In any case, the dividend payments you receive might be taxable. Read on to learn more about taxes on dividends and other related facts. To consult a corporate tax advisor in London or Walsall, visit us at IBISS & CO.
Some Dividend May Be Tax-Free
You won’t have to pay any tax on your dividend income if it’s not exceeding the Personal Allowance. The dividend income, along with other taxable income, is subjected to tax once it exceeds the threshold which is £12,570 for 2022/23. If the income isn’t going over this, there’s no income tax obligation.
Annual Dividend Allowance
If you receive dividends that amount to £2,000 or below, you won’t have to pay tax on it. This amount is known as your Annual Dividend Allowance, and as long as your dividend payment doesn’t exceed this number, there is no tax obligation.
Dividend Tax Depends on Income Tax Band
If you receive dividends and are an income taxpayer, the dividend tax will depend on your income tax band. For basic rate taxpayers, the dividend payments tax is 8.75% on the amount above £2,000 (which is the dividend allowance).
For higher rate taxpayers, the dividend payments tax rate is 33.75%, which you pay on the amount above £2,000. And lastly, for additional rate taxpayers, the dividends tax rate is 39.35% on the amount above £2,000. You can determine your current tax band if you add your taxable income, including all the dividend payments.
You Don’t Have to Report Your Dividend
If you’re receiving dividend payments and they don’t exceed the dividend allowance (£2,000), you don’t have to report them. Since HMRC doesn’t require you to pay any tax if your dividend income doesn’t exceed the allowance, you don’t have to report it to them either.
At IBISS & CO, we offer personal, business, and tax advice in London and Walsall. We have the best tax accountants and corporate tax advisors in the UK who can offer tips to reduce tax liability and make tax filing easier.
Reach out to us today.
