All limited companies operating throughout the UK, regardless of their size, should be aware of the 2020/21 dividend rates in the UK.
This is because, there are a whole host of dividend tax rates that affect how much money you can take from your company in the form of dividends.
If you’re struggling to get to grips with dividend rates in the UK, you have certainly landed in the right place. We have created a helpful guide outlining everything that you need to know.
What is a dividend allowance?
At the beginning of every tax year, every individual is assigned a dividend allowance which they can use regardless of the tax rate they pay, and for 2020/21, the dividend allowance is £2,000.
Personal allowance is £12,500 which means that an individual can earn up to £12,500 tax free within the current tax year. However, you should be aware that once you start earning above the dividend allowance, the tax you will pay will depend on a number of different the dividend tax rates which we have listed below.
The rates are as follows:
- Basic rate – 7.5%
- Higher rate – 32.5%
- Additional rate – 38.1%
It’s important that all individuals understand the dividend tax rate applies to them.
Find out more about dividends here.
Do you pay tax on dividends?
Whether or not you will pay tax on dividends will depend on how much you earn as your dividend income. As a general rule of thumb, self-employed individuals must use their Self-Assessment to inform HMRC of their dividend earnings and any amount over £10,000 must be included in the individual’s tax return. For individuals that earn under £10,000 in dividends, they must contact HMRC directly, or speak to their accountant.
An accountant has the experience, skills and expertise to keep you right when it comes to dealing with dividends.
What are the benefits of taking dividends?
One of the main reasons why people take dividends from their business is that taking dividends as part of your earnings can be more tax efficient than taking a salary alone.
However, in order for any dividends to be issued, your company must have enough profit to cover the dividend payments as dividends are generally paid from profits after you have accounted for Corporation Tax.
Check out our blog on how much dividend you can take to find out more.
Why choose React Accountancy?
Here at React Accountancy, we provide trusted accountancy services to start-up, established and multi-national businesses across a diverse range of industries.
From the moment you get in touch, our approachable, friendly and professional team will go above and beyond to ensure that you receive the right advice, support and accountancy solutions for your business.
All of our team has years of experience in providing accountancy services that support your business including complex financial issues.
Get in touch today for further information about any of our services.
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