Owners and directors of family businesses often take a small salary from the company and any extra funds as dividends. Other family members may also hold shares in the company and receive a dividend each year.
The first £2,000 of dividends received by each taxpayer is currently tax-free but that dividend allowance will be cut to £1,000 on 6 April 2023 and £500 in April 2024. Your company may wish to review how and when it pays dividends to family shareholders this year. We can help you with this.
Taxpayers who receive dividends in excess of their dividend allowance need to inform HMRC of that income and, in many situations, will have to complete a tax return to declare their taxable dividends.
Dividend income is treated as falling into the taxpayer’s highest tax band where it is taxed at these rates in 2022-23:
- basic rate band: 8.75% (other income taxed at 20%);
- higher rate band: 33.75% (other income taxed at 40%); and
- additional rate band: 39.35% (other income taxed at 45%).
These dividend tax rates were increased on 6 April 2022 and could be increased again in the Spring Budget on 15 March.