Dividends are taxed at much lower rates than other forms of income and they are not subject to national insurance contributions (NIC). This can make taking income from your own company in the form of dividends far more attractive than paying yourself a bonus.
All taxpayers are currently entitled to a dividend allowance of £2,000 in addition to the personal allowance which is gradually withdrawn where annual income exceeds £100,000.
The dividend allowance effectively applies a zero rate of tax to the first slice of dividends received in the tax year. The Chancellor has decided to cut the dividend allowance to £1,000 per year for the tax year 2023-24 and then to £500 from 6 April 2024.
The rates of tax applicable to dividend income have not been changed for 2023-24.
| Tax year: | 2022-23 | 2023-24 |
| Dividend allowance | £2,000 | £1,000 |
| Basic rate band | 8.75% | 8.75% |
| Higher rate band | 33.75% | 33.75% |
| Additional rate band | 39.35% | 39.35% |
In 2023-24 the cut in the dividend allowance will cost a basic rate taxpayer £87.50; a higher rate taxpayer £337.50; and an additional rate taxpayer £393.50 assuming that these individuals would use the full allowance.
Contact
For advice and assistance with dividend tax, contact a member of our team.