Understanding Dividends Tax
Why pay tax on your dividends?
Like most company directors who are owners of your own company you are more likely to take your income as dividends than salary. This is because it saves National Insurance.
What gets confusing is how much money you should put aside from the dividends to cover the tax.
How does dividends tax work?
Dividend income gets taxed each year based on the total you receive in the year to the 5th April. This isn’t helped by the fact that tax is not paid monthly but in three instalments over a 12 month period before and after this tax year end.
Let’s say this is the year to 5th April 2019. The tax is due as a 50% estimate on account on 31st January 2019 and then another 50% is due on the 31st July 2019 with a final payment (or refund) on the following 31st January 2020. Also on the 31st January 2020 you are making the next 50% payment on account – it gets very confusing as to what you are paying for what period.
Summing it up:
So if you take dividends totalling £50,000 per year, equivalent to £4,166 a month then you need to put aside £301.97 per month to cover the eventual tax due. The above figures assume no other annual income and the final amount due will depend on all your circumstances.
If you need help:
If you would like to find out more please contact me