UK Dividend Tax Rates 2022

Here’s everything you need to know about the UK Dividend Tax Rates for 2022, whether you receive dividends from an investment or have a Limited Company and pay yourself a salary/dividend combination.

Updated 7 November 2021

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

1. What is a Dividend?

A dividend is a payment made to the shareholders of a registered Company such as a Limited Company or PLC. It is a distribution made from a business after all expenses and taxes are accounted for.

dividend
UK Dividend Tax Rates 2022

Dividends generally cannot be paid if a business has made a loss or has insufficient reserves on the balance sheet. And any payments of this nature will be deemed illegal. People receive dividends when they invest money or own shares in a Company.

Many people who are registered as self-employed and operate through a Limited Company often choose to pay themselves through a combination of PAYE salary and dividend. That’s because there are certain tax advantages they can use to minimise their tax bill.

2. Do You Pay Tax on UK Dividends?

The UK dividend allowance is one of the many tax allowances and reliefs available. That’s an amount you can earn from dividends tax-free. For the tax years 2021/2022 and 2022/2023 the dividend allowance is £2,000.

On top of the UK dividend allowance of £2,000, individuals can also use their personal allowance against any dividend income received (unless they’ve used it elsewhere).

3. What are the UK Dividend Tax Rates

Once any allowances are used up individuals will start to pay income tax on dividend income at the dividend tax rates. The current rates are:

Rate2021/20222022/2023
Dividend Allowance£2,000£2,000
Basic Rate Taxpayers7.5%8.75%
Higher Rate Taxpayers32.5%33.75%
Additional Rate Taxpayers38.1%39.35%

Increases of 1.25% in dividend rates were announced as part of the Autumn Budget.

4. How Are Dividends Taxed?

Dividends are taxed depending on which income tax band an individual falls into after taking into account all their earnings.

Example:

Penny is a self-employed actor and has set up a Limited Company. During the tax year 2021/2022 she paid herself a salary of £12,570 and took a dividend of £20,000 from her Limited Company. Penny has no other forms of income so her tax bill will be worked out as follows:

Employment IncomeDividend Income
Income12,57020,000
Personal Allowance(12,570)0
Dividend Allowance(2,000)
Taxable Income018,000
Tax Rate (basic rate)20%7.5%
How Are Dividends Taxed?

5. How Do You Pay Dividend Tax?

If you need to pay dividend tax, then the way you report it to HMRC depends on how much you receive each tax year.

5.1 Dividend Income Up to £10,000

If you earn less than the UK dividend allowance, currently £2,000 for 2021/2022 and 2022/2023, then you don’t need to tell HMRC anything.

If you receive up to £10,000 in dividends and have a PAYE job, then you don’t need to register for self-assessment. Instead, you can call HMRC on 0300 200 3300 and ask them to adjust your tax code, so any tax you owe is taken out of your payslip.

If you are not employed and earn more than the dividend allowance, you’ll need to fill in a tax return. You’ll need to register for self-assessment to do this by 5 October following the tax year you started receiving dividends or you went over the UK dividend allowance.

5.2 Dividend Income Over £10,000

If you earn more than £10,000 then you’ll need to fill in a tax return to declare your income and pay any tax you owe. Again, you’ll need to register for self-assessment to do this by 5 October following the tax year you started receiving dividends or you went over the UK dividend allowance.

6. Dividend Tax Voucher Template UK

If you are running a Limited Company then you’ll need to make sure you comply with the legal requirements when you pay a dividend, even though it is to yourself. You’ll need to issue paperwork to support your dividend including:

  • Holding a directors meeting to declare the dividend;
  • Writing up minutes of that meeting;
  • Preparing a dividend tax voucher.

Here is a dividend tax voucher template for you to fill out and keep on file for your Limited Company.

Related:

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek and money nerd helping financial DIY-ers organise their money so they can hit their goals quicker.