HMRC collecting dividend tax in advance

Following on from our article back in 2016, when the new tax regime was introduced, meaning dividend tax credit was abolished and a dividend allowance was introduced, we’ve now updated the article as follows.

This is how the dividend tax used to work prior to 6th April 2016, there was a national tax credit of 10% on dividend which was scrapped in 2016. Meaning if you were a normal taxpayer and didn’t have income including dividend above the basic threshold, no tax was payable on dividends. From 6th April 2018, the dividend allowance was reduced to £20,00.00 from £5,000.00 which had been introduced back in April 2016.

Dividend tax rates for 2018/2019 year

  • Basic Rate – 7.5% on dividend income
  • Higher rate – 32.5%
  • Additional rate – 38.1%

To determine which tax applies to you, here are the thresholds:

  • First £2000.00 – not taxed
  • Basic taxpayer up to £34,500.00 – 7.5%
  • Dividend income between £34,500 and £150,000.00 – 32.5%
  • Dividend income above £150,0000.00 – 38.1%

What do the HMRC dividend tax changes mean?

Tax will be applied on dividend received above £2000.00. No tax is payable if the dividend paid is below the threshold.

Let’s look at an example. If you have an employed income of £15,000 and in the same year you were paid a dividend of £20,00.00. No extra tax will be charged on dividends. However, if you had the same employed income of £15,000.00 and the same year paid a dividend amount of £50,00.00 (the extra £3000.00 will attract a dividend tax of 7.5%=£225.00) Plus the rest of the tax you will have paid on your employed income.

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