The dividend taxation system was changed on 6th April 2016. The old system, which involved ‘grossing up’ net dividends via tax credits has been replaced by a system of fixed tax rates.Dividend income is taxed as follows for tax year 2019/20:Tax BandTax RateBasic7.5%Higher32.5%Additional38.1%A £2,000 so-called ‘dividend allowance’ is also provided, which means the first £2,000 of dividends is not taxable.
If you require a personal illustration of your potential take home pay,
utilising your own Limited Company please click on the link below and
complete the personal illustration request form and a member of our
team will contact you shortly.
What are dividends?
If a limited company has made a profit, it is free to distribute these funds to its shareholders. This is the money the company has remaining after paying all business expenses and liabilities, plus any outstanding taxes (such as Corporation Tax and VAT).This ‘retained profit’ may have been accumulated over a period of time, and any excess profits not distributed as dividends simply remain in the company’s bank account.Working via a limited company is a tax efficient way to operate, as National Insurance Contributions (NICs) are not payable on company dividends, whereas they are payable on salaried income.Dividends must be distributed according to the percentage of company shares owned by each shareholder, i.e. if you own half the company’s shares, you will receive 50% of each dividend distribution.