Tax on dividends

Our experts tell you how your share dividend payments are treated by HMRC.

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust. Or you can check out our online calculator to see if you could be due a refund.

How are your share dividends taxed?

If you own shares in a company, you might receive a dividend payment from that company. These payments to shareholders are usually given as a way of sharing out profits made by the company.

You don’t have to pay tax on the first £5,000 of dividends you receive in any tax year (6th April to 5th April the following year). Any dividends you receive above this allowance will be taxed – how much will depend on the Income Tax band you are in. To work out which band you will be in, you will need to add this dividend income to your other taxable income. Depending on your income, you may pay Income Tax at different rates.

The rates are as follows:

Tax Band Tax rate on any dividends above the £5,000 allowance
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

 

If you are not sure how this is worked out, HMRC has provided some examples on the HMRC website of how the Income Tax is calculated.

If the shares form part of an ISA, you won’t need to pay any tax on any dividends.

Dividends that fall within your tax-free Personal Allowance don’t count towards the £5,000 dividend allowance.

How do you pay tax on dividends?

How you pay will all depend on how much income you receive in the form of share dividends. If the dividend income is less than £5,000 you don’t need to do anything.

If the share dividend income is between £5,000 and £10,000 you need to contact HMRC on 0300 200 3300 (textphone 0300 200 3319) to inform them. You can then ask HMRC to change your tax code to automatically collect any tax you owe. If you have to fill in a Self Assessment tax return, you will include it in your Self Assessment and will pay tax on those dividends in this way.

If the income you receive from your dividends is more than £10,000, you will be required to send a Self Assessment tax return, whether or not you already send one. If you’re not already registered for Self Assessment, you will need to register by 5th October following the tax year in which you received the dividend income. Once you have registered, HMRC will write to you to tell you what you need to do next.

What about dividends before 6th April 2016?

Share dividends were taxed differently before 6th April 2016. The rates at which you were taxed were different. As with the current tax rules, how much tax you pay depends on which Income Tax bands your dividends fell into. Again, you would need to add your dividend income to your other taxable income to work out which tax band they are in.

The tax bands and rates were:

Tax band Effective dividend tax rate
Basic rate and non-taxpayers 0%
Higher rate 25%
Additional rate 30.56%
Additional rate (for dividends paid before April 2013) 36.11%

 

To work out what you owe, you would need your dividend voucher. You would need to multiply the dividend amount, shown on your dividend voucher, by the effective tax rate. You can ignore the tax credit value.

If you already send a Self Assessment tax return, you would report these dividends in the ‘Dividends’ section. If you don’t need to send a Self Assessment tax return, contact HMRC on 0300 200 3300 (textphone 0300 200 3319) to report these dividends. HMRC will then calculate what you owe and will inform you of how much you need to pay and the methods for paying.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax rebate. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

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