As you may know, in April 2016, the Dividend Tax Credit was abolished, and a new £5,000 tax-free allowance for dividend income introduced. The allowance does not reduce total income for tax purposes and only applies to dividend income.
The new rates of tax on dividend income above the allowance are 7.5% for basic rate customers 32.5% for higher rate customers 38.1% for additional rate customers.
How you pay tax on dividends depends on the amount of dividend income you received in a tax year.
If it was less than £5,000, you should not need to do anything or pay any tax.
If it was between £5,000 and £10,000, you need to tell HMRC. You can do this by contacting the helpline, asking HMRC to change your tax code - the tax will be taken from your wages or pension or put it on your Self Assessment tax return, if you already fill one in.
If the dividend is over £10,000, you will need to fill in a Self Assessment tax return. If you do not usually send a tax return, you need to register by 5th October following the tax year you had the income. You will get a letter telling you what to do next after you have registered.
If you would like any assistance in registering or completing your tax return, your local TaxAssist Accountant would be happy to help. They can also look into your options regarding the settlement of any tax you owe.
By Jo Nockels
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.