The tax you pay on dividends increased by 1.25 percentage points from 6 April 2022; these higher rates will remain in place for 2023/24.
The dividend allowance in 2023/2024 will be cut from £2,000 to £1,000 on 6 April 2023 and cut again to £500 in April 2024. This is due to the higher dividend tax rate 2023/2024. You pay zero tax on dividends which fall within that allowance. Any additional dividends are charged to tax at a rate dependent on which tax band they fall into (see table below).
Where different shareholders in your company hold slightly different classes of shares, the dividends paid out can be tailored to the shareholder’s needs.
The company needs to have sufficient retained profits to extract as dividends and you should first check that the cash is not needed for other purposes, such as paying tax bills or investment in plant.
Have you used all your basic rate band and dividend allowance for 2022/23?.
|Dividends falling within:||Rate charged|
|Basic rate band||8.75%|
|Higher rate band||33.75%|
|Top rate band||39.35%|