Small business owners and the self-employed will be affected by changes to the dividend tax allowance. The tax-free dividend allowance would have been decreased from £5000 to £2000 but has now been withdrawn due to General Elections.

Rates for Dividend Tax

The dividend tax-free allowance stands at £5000 per year. However, according to your Income tax band, the dividend tax that you will pay, will change.

Dividend tax-free allowance£5000
Basic rate7.5% on earnings up to £33,500
Higher rate32.5% on earnings up to £150,000
Additional rate38.1% on earnings above £150,000

Note that the Dividend Tax rate does not include Personal tax allowances for 2017/2018.

How to receive Dividends

  • As the director of a limited company you will have with shares in the company. This means that you are entitled to a dividend payment
  • If you have a Shares ISA, any dividends that you receive, are tax free
  • Any dividends considered in your Personal Allowance will not be considered for your tax-free dividend allowance of £5000

Paying Dividend Tax

You are required to pay dividend tax in the following circumstances:

1. Your dividend is less than £5000 which means that you do not need to pay any tax or inform HMRC

2. Your dividend is £5000 -£10 000 which means that HMRC needs to be informed and your tax code will need to be changed when included in your self-assessment

3. Your dividend is over £10 000 which means that you must register with HMRC for self-assessment