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Dividends Guide
- What are dividends?
- Dividend tax rates and allowances
- Paying taxes on dividends
- Dividend FAQs
What are the taxes, rates and allowances on dividends?
A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.
Dividends are calculated based on profits-what is left in your company after all expenses have been paid-not revenue.
Dividends can be either paid in cash or reinvested into your investment portfolio via dividend reinvestment, or via SCRIP dividends-which allow companies listed on the LSE to give investors additional shares instead of cash payouts.
Dividend tax refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.
What are dividends and dividend taxes?
As a limited company director, you have greater flexibility to work around the tax system, and are able to implement tax optimisation strategies not available via other business structures.
One of these ways is to draw dividends from your company, as opposed to receiving a salary; doing so can help to reduce your tax bill.
If you're newly self-employed, this can be rather confusing.
You might be wondering: How can dividends help reduce my tax bill, and what taxes do I need to pay on them? Are there additional considerations I need to keep in mind?
These are the questions we'll be answering below:
What are dividends and why are they important?
A dividend is a payment of profit that a limited company distributes to its shareholders. This is the money remaining after all business expenses and liabilities, as well as outstanding taxes (including VAT and Corporation Tax) have been paid off.
Dividends are important as they are a tax-efficient way to pay yourself from your limited company. Other than drawing dividends as income, you may also consider paying dividends into a pension fund, ISA or to family members.
What is Dividend tax?
A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.
Dividend tax therefore refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.
