Understanding the terms is an important thing to do before rushing to the end of this article. So first off, it is time to define what a dividend is. Well, a dividend is money paid by any limited company and this is given to an individual who owns company shares. A shareholder is an example. Taxes on dividends are paid using the rate set by the HMRC. This is based on dividend payments received.
Individuals who get income from dividends will get £2,000 without tax. This is not dependent on their income that is non-dividend. These individuals should also understand dividend tax rates so proper filing and payment of taxes can be done.
How is taxation of dividends done?
Company shareholders get dividend payments. Individuals who get such payments need not pay any taxes for income from dividends which is still within their range of Personal Allowance. Personal Allowance is actually the total income which an individual can earn each year which is non-taxable. A person receives a dividend allowance annually. The only paid taxes are the ones which are more than the dividend allowance that has been stated.
What is the rate for dividend tax?
For the 2020/21 tax year, there have been no changes announced with regards to the dividend tax rate. The dividend allowance that is non-taxable still remains at £2,000. Taxpayers using the basic rate would still use 7.5% for dividends. Those with higher rates would be at 32.5% of all dividends. Taxpayers with additional rates would be at 38.1% of their dividends. These rates are important for shareholders so they would know the exact amount on how much their taxes would be.
How are dividends paid by individuals?
Individual taxes are dependent on the amount of dividend that they actually got for the entire tax year. Those who have earned over the £2,000 tax-free amount but did not go over the £10,000 dividends must go and tell HMRC about it. Contacting the HMRC via its helpline can work. Another option would be to send a request to the HMRC for any changes in tax codes to ensure that taxes are automatically deducted from their wages or pension. Individuals can also send in Self Assessment tax returns. With this, HMRC does not need to be informed about dividends that are within the allowance for the tax year.
Individuals who receive dividends that are more than £10,000 are required to send in their Self Assessment tax return. Should this be something that they have not done yet, registration with the HMRC should be done on or before October 5th after the tax year when the dividend was received. After registration, an individual will receive a letter from the HMRC containing information on the next steps to take.
Shareholders receive dividends and they should pay taxes for these. They should know if their dividend is tax-free or non-taxable, and know how to file and pay for it. Company Address can help businesses with Company Formation through packages like the Privacy Package and it can provide assistance on getting important communication from HMRC straight to business owners.
published under Tax and Legislation Guides
