A dividend is a sum of money that you might receive if you own shares in a profitable limited company. Only limited companies can pay them. If you’re a sole trader, you won’t be able to extract dividends as income from your business.
In order to pay shareholders dividends, the limited company directors have to all get together to “declare” the funds that they’ll be releasing. The payment can only come out if the company makes a profit – and it’s deducted after Corporation Tax and VAT. Dividends are a very tax efficient method of extracting income from a company.
Dividends are taxable, however they are taxed at a different rate to your normal income. See our table below to see the tax charges on your dividends, depending on your total income of salary and dividend.
|Up to £12,570
|£12,571 – £50,270
|£50,271 – £125,140
Your method of paying tax on your dividends is dependent on the amount you earn in dividends that year.
No – National Insurance is not payable on dividends.
The first £1000 of your dividend payment is actually tax-free, so you would pay on everything beyond that Personal Allowance. For comprehensive advice about the most tax-efficient dividend claims to make, get in touch today!