{"id":2721,"date":"2024-08-01T07:14:00","date_gmt":"2024-08-01T07:14:00","guid":{"rendered":"https:\/\/www.experlu.co.uk\/blog\/?p=2721"},"modified":"2025-07-08T10:03:56","modified_gmt":"2025-07-08T10:03:56","slug":"calculating-tax-on-dividends","status":"publish","type":"post","link":"https:\/\/www.experlu.co.uk\/blog\/calculating-tax-on-dividends\/","title":{"rendered":"Calculating tax on dividends: A guide &#038; example"},"content":{"rendered":"\n<p>&#8220;Dividends&#8221; is a popular term in business circles, but most people still have doubts about calculating tax on it. The same goes for newly self-employed individuals starting a <a href=\"https:\/\/www.experlu.co.uk\/blog\/close-limited-company-without-paying-any-tax\/\">limited company<\/a>.<\/p>\n\n\n\n<p>What is a dividend, and how can we save tax on dividends? This blog post will discuss calculating the tax on dividends and other related terms.<\/p>\n\n\n\n<div class=\"outline_two\">\n    <h2>Table of Content<\/h2>\n    <ul>\n        <li><a href=\"#What_are\">What are dividends?<\/a><\/li>\n        <li><a href=\"#What_is\">What is dividend tax?<\/a><\/li>\n        <li><a href=\"#What_are_the\">What are the tax rates on dividends for 2024-25?<\/a><\/li>\n        <li><a href=\"#How_to\">How to calculate tax on dividends?<\/a><\/li>\n        <li><a href=\"#How_much_salary\">How much salary and dividend can I take home without paying a Higher Rate of tax?<\/a><\/li>\n        <li><a href=\"#Wrapping_up\">Wrapping up<\/a><\/li>\n    <\/ul>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"What_are\">What are dividends?<\/h2>\n\n\n\n<p>Dividends are the sum of money that a <a href=\"https:\/\/www.experlu.co.uk\/blog\/how-to-set-up-a-limited-company\/\" data-wpil-monitor-id=\"184\">limited company<\/a> pays out to its shareholders. These <a href=\"https:\/\/www.experlu.co.uk\/blog\/transfer-shares-in-my-company\/\" data-wpil-monitor-id=\"185\">shareholders can be investors in the company<\/a>, employees, directors or a director&#8217;s relatives.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/www.experlu.co.uk\/hire-experts?utm_source=blog&amp;utm_medium=CTA_button&amp;utm_campaign=SATR&amp;utm_id=b1&amp;utm_term=self+assessment&amp;utm_content=button_click%22%20class=%22bfill-btn\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"523\" src=\"https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-1024x523.jpg\" alt=\"Self Assessment\" class=\"wp-image-8830\" srcset=\"https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-1024x523.jpg 1024w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-300x153.jpg 300w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-768x392.jpg 768w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-450x230.jpg 450w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-780x398.jpg 780w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-150x77.jpg 150w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<p>A company earns income and pays taxes and expenses. After accounting for all purchases, business expenses, and taxes from your earnings or turnover, a company can distribute the remaining amount to shareholders as a return on investment.<\/p>\n\n\n\n<p>Dividends cannot be counted as a <a href=\"https:\/\/www.experlu.co.uk\/blog\/corporation-tax-rate-increases-in-april-2023\/\" data-wpil-monitor-id=\"186\">business expense while calculating corporation tax<\/a>. When a company&#8217;s directors choose not to distribute the extra profits at the end of the accounting period, the profit accumulates and can be distributed later.<\/p>\n\n\n\n<p>The most common tax-efficient way to pay yourself as a limited company director and owner is by combining dividends and a lower salary.<\/p>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/DaxcuIIMy2k?si=rUyIcweeAyUhXEyI\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"What_is\">What is dividend tax?<\/h2>\n\n\n\n<p>As Dividends are a source of income, you are liable to pay a tax on the total amount of dividends earned in a tax year.<\/p>\n\n\n\n<p>For the tax year 2024-25, the <a href=\"https:\/\/www.gov.uk\/tax-on-dividends\">dividend tax allowance<\/a> is \u00a3500. Dividends earned above this amount are taxable. That means you can earn a \u00a312,570 personal allowance plus \u00a3500 in dividends as tax-free income.<\/p>\n\n\n\n<p>The tax on dividends above your tax-free allowance depends on your income tax band, but the rates are lower than income tax rates.<\/p>\n\n\n\n<p>Your company is not liable to pay any tax on its dividend payments. However, the shareholders must pay taxes on the same through their annual <a href=\"https:\/\/www.experlu.co.uk\/self-assessment-tax-returns\">self-assessment tax return<\/a>.<\/p>\n\n\n\n<p>The most tax-efficient way of operating a business is by registering it as a limited company. In that case, neither you nor the employee needs to pay National Insurance contributions on dividends. But if your salary exceeds the relevant National Insurance thresholds, both employer&#8217;s and employee&#8217;s NICs are payable.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"What_are_the\">What are the tax rates on dividends for 2024-25?<\/h3>\n\n\n\n<p>Dividend tax rates is calculated based on earnings above the personal plus dividend allowance. It is taxable as follows,<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Dividend tax rates<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"has-background\" style=\"background-color:#fcf0ef\"><tbody><tr><td><strong>Income tax <\/strong><br><strong>band<\/strong><\/td><td><strong>The dividend tax rates <\/strong><br><strong>for 2024-25<\/strong><\/td><td><strong>Dividend tax <\/strong><br><strong>band<\/strong><\/td><\/tr><tr><td>Basic rate<\/td><td>8.75%<\/td><td>\u00a3500 &#8211; \u00a337,700<\/td><\/tr><tr><td>Higher rate<\/td><td>33.75%<\/td><td>\u00a337,701 &#8211; \u00a3150,000<\/td><\/tr><tr><td>Additional rate<\/td><td>39.35%<\/td><td>Above \u00a3150,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>You don&#8217;t need to inform HMRC if your dividend income is below \u00a3500, which is the tax-free dividend allowance.<\/p>\n\n\n\n<p>If you are not filing a self-assessment tax return, then on receiving dividends, you must register with HMRC. Whether you earn dividends from your company or others, you must mention the total amount in the <a href=\"https:\/\/www.experlu.co.uk\/blog\/funniest-excuses-for-not-filing-a-tax-return-on-time\/\">tax return<\/a>. The higher your dividend income is, the more will be the dividend tax.<\/p>\n\n\n\n<p>If you receive dividends from a company where you are not a director, and don&#8217;t file a self-assessment tax return, call HMRC. You can ask them to <a href=\"https:\/\/www.experlu.co.uk\/blog\/incorrect-tax-code\/\" data-wpil-monitor-id=\"187\">change your tax code<\/a> if paying through PAYE, or if the dividend income is above \u00a310,000, register for self-assessment by 5th October of the following year you have earned dividends.<\/p>\n\n\n\n<p>For the tax year 2023-24, the dividend rates were:<\/p>\n\n\n\n<p>\u25cf&nbsp;&nbsp;Basic rate: 8.75%<br>\u25cf&nbsp;&nbsp;Higher rate: 33.75%<br>\u25cf&nbsp;&nbsp;Additional rate: 39.35%<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"How_to\">How do you calculate tax on dividends?<\/h3>\n\n\n\n<p>To calculate tax on dividends for tax year 2024\/25, here are dividend tax examples for a clear understanding.<\/p>\n\n\n\n<p><strong>Example 1:<\/strong><\/p>\n\n\n\n<p>When dividends are your only source of income, let&#8217;s calculate its tax.<\/p>\n\n\n\n<p>Lisa earns \u00a350,000 yearly from dividends.<\/p>\n\n\n\n<p>Her personal allowance is \u00a312,570, and her dividend allowance is \u00a3500. After subtracting these from the income, we have \u00a336,930 taxable income.<\/p>\n\n\n\n<p>Lisa&#8217;s dividend income now falls in the basic income rate category, so HMRC charges an 8.75% dividend tax on the taxable income.<\/p>\n\n\n\n<p>So, the amount of tax to pay is \u00a33,231.38, circa 6.46% of your income.<\/p>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"has-background\" style=\"background-color:#fcf0ef\"><tbody><tr><td><strong>Income<\/strong><\/td><td><strong>Income type<\/strong><\/td><td><strong>Income tax rate<\/strong><\/td><td><strong>Tax to pay<\/strong><\/td><\/tr><tr><td>First \u00a310,000<\/td><td>Salary<\/td><td>Tax-free personal allowance (\u00a312,570 for 2024-25)<\/td><td>None<\/td><\/tr><tr><td>Next \u00a32,570 (12,570-10,000)<\/td><td>Dividends<\/td><td>Tax-free personal allowance<\/td><td>None<\/td><\/tr><tr><td>Next \u00a3500<\/td><td>Dividends<\/td><td>Tax-free dividend allowance<\/td><td>None<\/td><\/tr><tr><td>Next \u00a336,930<\/td><td>Dividends<\/td><td>The basic Dividend tax rate @8.75 %<\/td><td>\u00a33,231.38<\/td><\/tr><tr><td>Total income tax <\/td><td>\u00a33,231.38<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"How_much_salary\">How much salary and dividend can I take home without paying a higher tax rate?<\/h3>\n\n\n\n<p>To enjoy <a style=\"color:#9B51E0;\" href=\"https:\/\/www.experlu.co.uk\/blog\/tax-benefits-on-investing-in-startups\/\">tax benefits<\/a> on your income, try to take a combination of salary and dividends, but how much? You can take salary until employer NIC threshold and the rest as dividend until the higher threshold.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Dividend Tax Calculator<\/h2>\n\n\n\n<figure class=\"wp-block-table is-style-stripes\"><table class=\"has-background\" style=\"background-color:#fcf0ef\"><tbody><tr><td><strong>The calculation for 2024-25<\/strong><\/td><td>&nbsp;<\/td><\/tr><tr><td>Salary (as per current NIC threshold)*<\/td><td>\u00a39,100<\/td><\/tr><tr><td>Dividends<\/td><td>\u00a341,170<\/td><\/tr><tr><td><strong>Total income<\/strong><\/td><td><strong>\u00a350,270<\/strong><\/td><\/tr><tr><td>Personal allowance<\/td><td>\u00a312,570<\/td><\/tr><tr><td><strong>Taxable income<\/strong><\/td><td><strong>\u00a337,700<\/strong><\/td><\/tr><tr><td>Dividend allowance<\/td><td>\u00a3500<\/td><\/tr><tr><td>Dividends taxable @8.75%<\/td><td>\u00a337,200<\/td><\/tr><tr><td><strong>Income tax due<\/strong><\/td><td><strong>\u00a33,231.38<\/strong><\/td><\/tr><tr><td><strong>Take-home pay<\/strong><\/td><td><strong>\u00a346,768.62<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>* NIC threshold is reducing to \u00a35,000 from 06 April 2025.  <\/p>\n\n\n\n<p>You will attract a higher dividend tax rate if you want an income above \u00a350,270.<\/p>\n\n\n\n<p>While distributing dividends among shareholders, make sure you consider the number of shares in the company. That means, if you are one of the directors in the company with one-half shares, you must take 50% of each dividend distribution.<\/p>\n\n\n\n<p>The shareholders must receive a dividend voucher containing their name, contribution in terms of shares, address, amount of <a href=\"https:\/\/www.experlu.co.uk\/blog\/rd-tax-credits\/\">tax credit<\/a>, net dividend being paid, etc.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/www.experlu.co.uk\/hire-experts?utm_source=blog&amp;utm_medium=CTA_button&amp;utm_campaign=SATR&amp;utm_id=b1&amp;utm_term=self+assessment&amp;utm_content=button_click%22%20class=%22bfill-btn\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"523\" src=\"https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-1024x523.jpg\" alt=\"Self Assessment\" class=\"wp-image-8830\" srcset=\"https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-1024x523.jpg 1024w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-300x153.jpg 300w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-768x392.jpg 768w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-450x230.jpg 450w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-780x398.jpg 780w, https:\/\/www.experlu.co.uk\/blog\/wp-content\/uploads\/2024\/08\/199-1-150x77.jpg 150w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Wrapping_up\">Wrapping up<\/h3>\n\n\n\n<p>Distributing dividends must follow the <a href=\"https:\/\/www.experlu.co.uk\/blog\/changes-to-uk-company-law-from-4-march\/\" data-wpil-monitor-id=\"188\">law<\/a> of a country. For better understanding, it is always advisable to hold a meeting between the directors and the shareholders of the limited company and discuss how much dividends to distribute, even when you are a single director.<\/p>\n\n\n\n<p>If declaring dividends among shareholders in the company gets complicated by the rise in annual earnings, <a style=\"color:#9B51E0;\" href=\"https:\/\/www.experlu.co.uk\/blog\/how-to-choose-an-accountant\/\">consult an accountant<\/a>.<\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Dividends&#8221; is a popular term in business circles, but most people still have doubts about calculating tax on it. The same goes for newly self-employed individuals starting a limited company. What is a dividend, and how can we save tax on dividends? This blog post will discuss calculating the tax on dividends and other related [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":2724,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[709,22],"tags":[232,233,24,234],"class_list":["post-2721","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-self-assesment","category-tax","tag-calculating-tax","tag-dividend-tax","tag-tax","tag-tax-year-2022-23"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Calculating tax on dividends: A guide &amp; example - Experlu<\/title>\n<meta name=\"description\" content=\"&quot;Dividends&quot; is a term that most of us have heard in business circles, but we still have doubts. 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