Dividend tax calculator

Guide to dividend tax rates and calculating dividend tax for shareholders

Individuals that own and hold shares in a limited company may receive dividends as a form of income from the company. Dividends can be paid from a company if it’s made a profit. Dividends can be a tax efficient way to pay yourself and other shareholders.

Dividend tax calculator for the 2024/25 tax year

The Dividend Tax Calculator will help you calculate how much dividend tax that you will need to pay, depending on your annual salary and dividends you receive during the 2024/25 tax year.

You will need to enter amounts in the relevant boxes of the calculator attached below to calculate how much tax you may need to pay for the tax year 2024/25 for the dividends you receive.

PUT CALCULATOR HERE (from existing blog page)

This dividend tax calculator is only for reference purposes. For accurate and detailed report, please consult with an accountant such as dns accountants. *

Dividend calculator notes

• To keep the calculator as simple as possible, you cannot add any extra sources of revenue like dividends from other companies etc. It’s better to talk to your accountant if you require a more complex calculation.
• The tax free personal allowance for all taxpayers is £12,570 for the 2024/25 tax year. The income tax bands used in this calculator and below are applied after your personal allowance has been used up.
• Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above.
• There is no tax to pay on the first £500 of dividends.
• You or the company do not pay national insurance contributions on dividends.
• You always need to discuss with your accountant before making any conclusion based on the calculations delivered here.

What is a dividend?

Dividends are a payment received from a limited company to its shareholders from the profits left over after paying Corporation Tax. Annual dividend payments paid out cannot be more than the company’s profits in the current year or retained profits from previous financial years.

The rate of dividend tax can in many cases be lower than income tax rates, which makes pay on dividends much more tax efficient than paying shareholders salary alone. Unlike salaries, dividends are also not subject to National Insurance. This means that dividends are generally a tax-efficient way of extracting money out of a limited company.

One important thing to consider is that dividend payments should only be made if there are satisfactory retained earnings in the company to cover the dividends. Overpaying dividends makes them illegal, which carries consequences such as the director having to repay the dividends, or the business becoming financially vulnerable.

Dividends and limited company directors

Many limited company directors and shareholders will take a combination of salary and dividend but withdraw most of their income in the form of dividends.

It is important that as a director of a limited company, you pay yourself as tax efficiently as possible. How you pay yourself with a combination of tax efficient director’s salary and dividends will affect your personal tax bill and your corporation tax bill.

As a director of a limited company, you are also an employee of that limited company. This means you may have to pay National Insurance Contributions (NICs) on salary payments as both an employer and employee. It is also beneficial to pay yourself a combination of salary and dividend (as this is more tax efficient). Therefore, you need to understand:

• National insurance thresholds.
• Employer’s national insurance.
• Employee’s national insurance.
• National insurance qualifying payments for future state pension.
• Income tax free personal allowance.
• Employment allowance.
• Dividend allowance.
• Dividend tax rates.
• Personal tax rates.

Calculation of dividend tax

Receiving dividends will affect your overall tax liability.

Dividend tax is calculated according to an individual’s total taxable income and income tax band. Total taxable income includes things like salary, dividends, bank interest, interest from investments and other income from other sources such as rental income.

For the 2024/25 tax year, dividend tax rates range from 0% up to 39.35%, and your marginal rate of dividend tax is linked to your income tax band.

What are the dividend tax rates for 2024/25?

How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.

Tax band Tax rate on dividends over the allowance

Basic rate 8.75%

Higher rate 33.75%

Additional rate 39.35%

Dividend tax allowance

The dividend allowance has been continually cut over recent years by various Chancellors.

A tax free ‘dividend allowance’ (the amount of dividend you can pay tax free) is applied to the first £500 of dividend income for tax year 2024/25. Meaning you can earn £500 in dividends before you pay any tax on them.

Strategies for tax-efficient dividend payments

Many company directors and shareholders opt for a small salary and then dividends from their limited company as a major part of their personal tax planning strategy. However, there are other ways to also extract profits from your limited company to get maximum tax efficiency. Contact dns accountants on how to extract profits from your limited company tax efficiently.

Paying tax on up to £10,000 in dividends

To pay tax on dividends up to £10,000 you should tell HMRC by:

• contacting the helpline
• asking HMRC to change your tax code - the tax will be taken from your wages or pension
• putting it in your Self Assessment tax return if you already fill one in

You do not need to tell HMRC if your dividends are within the dividend allowance for the tax year.

Paying tax on over £10,000 in dividends

You’ll 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.

Summary

Dividends can be a tax efficient way to pay yourself and other shareholders of a limited company. This dividend tax calculator is for illustrative purposes only. You should seek advice from qualified tax professionals such as dns accountants. For more help and advice on dividend tax, income tax, self assessment or any other areas of personal or corporate tax planning contact the dns team today on 03300 886 686 or email us on enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.