Are you a business owner in the UK? Do you pay dividend tax on your share earnings? But wait! Do you know the latest dividend tax rates and tax free dividend allowance? The tax man brings new UK tax thresholds and dividend tax rates for each accounting year. In order for you to plan your take home dividend earnings, you should be aware of the latest rates and allowances.
Raza Laghari, Director Certax Fitzrovia has put together the information in this article so that you can know all there is to know about Dividend Taxes in UK for Tax year 2019/2020. This article has updated information till its time of publication.
WHAT IS YOUR TAX FREE DIVIDEND ALLOWANCE?
There is a certain threshold, below which your dividends are not subject to tax. In effect, up to this threshold there is no difference between your gross dividends and take home dividend income. Dividend up till this threshold are call Dividend Allowance.
All tax payers are allotted this dividend allowance. It makes no difference which UK tax bracket they fall in. This means no matter at which rate they pay their dividend tax eventually, their initial threshold for tax free dividend allowance remains universal for all tax payers.
For all practical purposes, the dividend allowance is a 0% tax bracket. For tax year 2019/2020, dividend allowance is £2,000. This is same threshold as for the previous year. For Dividend earnings above £2,000, you will have to know which dividend tax bracket you fall in.
DIVIDEND TAX RATE BRACKETS:
There are three dividend tax rate brackets:
- Basic Rate- 7.5%
- Higher Rate- 32.5%
- Additional Rate- 38.1%
How you actually work tax on dividend is a bit complex. You need to know your Total Income Tax Band. Add your dividend income in your all other income to know your Tax band. You may pay tax at more than one rate. The Table Below and the following worked example can give you a better outlook
| TAX RATE | TOTAL INCOME | DIVIDEND INCOME |
| TAX FREE ALLOWANCE | Personal allowance
£12,500 |
Dividend Allowance
£2000 |
| BASIC RATE | £12,501-50,000
20% |
7.5% |
| HIGHER RATE | £50,001-150,000
40% |
32.5% |
| ADDITIONAL RATE | Above £150,000
45% |
38.1% |
DIVIDEND TAX UK WORKED EXAMPLE:
Mr. A gets £30,000 in wages and £3,200 in Dividends for Year 2019-2020.
Mr. A’s Total Income: £30,000 + £3,200= £33,200
Income after personal Allowance: £33,200- £12,500=£20,700
This is Basic Rate Tax Band.
Therefore Mr. A will pay:
20% on £17,500=£3,500
No Tax on first £2,000 dividend
Basic Rate of 7.5% on remaining £1,200= 90
Total Tax Due is £3500+£90=£3590
HOW YOU PAY TAX ON DIVIDENDS?
Now that you know about UK tax Brackets and Dividend Tax Rates, it is important that you know how you pay dividend. All self employed individuals will use their Self Assessment Returns to declare their dividend earnings to the HMRC. In case you are earning less than £10,000 in dividends you need to contact HMRC and have your tax codes changed.
In all circumstances, Tax on Dividends is usually complicated and if you have more than one source of earnings, it is better you seek services of Professional accountant. If you need a professional accountant service in central London, you may contact Certax Fitzrovia Ltd. We are not only expert in UK dividend Tax Calculations but also excel in VAT management, Tax consultancy, bookkeeping, Self Assessment Returns and Payroll Accounting.
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