Limited Company Dividend Income
Income earned from dividend is taxed differently in comparison to the salaried income and it is declared through annual self-assessment process.
Different companies have different shareholding pattern and in many of the limited companies, the shareholdings are divided between peoples, mainly husband & wife or between the partners. In many cases, dividend income is the only source of income for the spouse of the owner of the company. Hence, this raises an important question that whether owner’s spouse also needs registration for filing tax return even if no tax is due on her dividend income? And the answer is yes – Every individual earning dividend income need to register for tax return regardless the tax has been due on her or not.
How are dividends taxed?
Dividends are taxed at different rates on the basis of income earned from dividend. If you are earning dividend income up to £37,500 (Personal allowance being £12,500) for tax year 2020-21, you will lie in the category of basic tax rate band and will be taxed at 7.5%. In another case, if your dividend income is b/w £37,501 to £150,000, you will lie in the category of higher rate tax band and will be taxed at 32.5%. In case, your dividend income exceeds £150,000, you will lie in the category of additional tax rate band and will be taxed at 38.1%.
Find out here – UK Tax Rates for 2020-21
Dividend Income Tax Rates for 2020-21
In order to make it simple for you, we summarize the same details in the table below –
| Tax band | Income for 2019/20 | Tax rate |
| Basic | £0 – £37,500 | 7.5% |
| Higher | £37,001 – £150,000 | 32.5% |
| Additional | Over £150,000 | 38.1% |
Need of tax return registration if you are a lower rate tax payer
If you are a contractor’s wife and a lower rate tax payer receiving dividend income of £10,000 a year, you are obliged to complete tax return each year regardless of what income you are receiving as a dividend. All company directors should complete their tax returns each year in order to remain compliant in the eyes of law.
When do you have to register to complete a tax return?
Everyone including owner’s spouse need to register with HMRC, once you know that you are going to receive dividend income. You must register by 5th October in order to file tax returns.
Any Questions? Request a callback from our Tax Experts.
