Dividend tax rates
| Tax band | Effective dividend tax rate |
| Basic rate (and non-taxpayers) | 0% |
| Higher rate | 25% |
| Additional rate | 30.56% |
| Additional rate – dividends paid before April 2013 | 36.11% |
When you receive a dividend from a company, you should get a dividend voucher. This will usually show:
- the dividend amount
- a ‘tax credit’ – this is one-ninth of the dividend
Work out the tax you owe by multiplying the dividend amount by the effective tax rate. Ignore the tax credit.
Dividends are paid out of your company’s post-tax profits – that is to say, the money left over once you have paid your Corporation Tax. You pay dividends by declaring them, by documenting the declaration in the form of company board meeting minutes, and by issuing a dividend voucher to each shareholder.
Once declared, the dividend itself can be paid whenever you want. It is crucial, however, that you do NOT pay out more in dividends than you can afford after allowing for tax, even if you expect to make up the additional funds before your Corporation Tax Return falls due, as to do so would break company law.