New dividend tax rates were announced as part of the Mini Budget late in September, which was presented by Kwasi Kwarteng, the Chancellor of the Exchequer at the time. The higher tariffs, which were a component of his strategy for economic expansion, were scheduled to take effect on April 6, 2023.

The base rate of dividend tax is reduced by 1.25% under the new rates, while a higher rate tax band is introduced for taxpayers. Additionally, since the additional income tax rate was eliminated for 2023–2024, dividend income that was taxed at an additional rate of 39.35% in 2022–2023 would now be subject to an upper rate of 32.5%. This would have given additional rate taxpayers a sizable benefit of 6.85%. The Chancellor changed his mind on the issue on October 3, saying that the additional rate of income tax and dividend tax will not be reduced further than the 1.25% suggested decrease across the board in response to significant media and cross-party opposition. This implies that beginning with the tax year 2023–2024, extra rate taxpayers will in fact be subject to a 38.1% dividend tax.

A person with a dividend income of £10,000 will benefit from the new dividend tax rates by about £100, while someone with a dividend income of £30,000 will save £350.

Who is eligible to get a dividend payment?

Every shareholder who has shares in the corporation receives dividend payments on a regular basis. A corporation often has a large number of shareholders, while limited companies occasionally just have one stakeholder. If the business made a profit, the managing director, who is typically in this position, will pocket all dividends personally.

How to tax dividends

Anyone who receives a dividend payment from a firm will probably have to pay tax on it. However, a certain amount of dividend income can be collected annually without having to pay taxes. An illustration would be if a person's dividend income was less than their Personal Allowance. They wouldn't have to pay any tax on their payout in this situation.

There is also a £2000 dividend allowance every year. Therefore, only dividend amounts above the allowance are subject to tax. Dividends from shares in an ISA are not subject to tax.

Current legislation

Chapter 2 of Part 2 of the Income Tax Act of 2007 provides information on the current dividend income tax rates. The dividend rates are outlined in Section 13, while Section 13A stipulates that a certain amount—currently £2,000—is charged at no rate.

Proposed revisions

Section 13A of the Income Tax Act of 2007 will be amended by legislation that will be included in the Autumn Finance Bill of 2022. The amount charged at the nil rate will decrease as a result of the shift from £2,000 to £1,000 as of April 6, 2023, and subsequently to £500 as of April 6, 2024.

Dividend rates as announced

The following are the dividend rates for 2022–2023 and 2023–2024:

8.75% is the base rate for 2022–2023.

33.75% is a higher rate for 2022–2023

Additional rate of 39.35% for 2022–2023

Reporting dividend income to HMRC

If dividend payments total less than £2000 and fall below the dividend allowance limit, HMRC does not need to be notified. Dividend tax can be paid in two different ways. If you receive a dividend of up to £10,000, you may:

•       Speak with the HMRC helpdesk.

·       If a Self Assessment tax return (SA100) is typically submitted each year, declare it using that form.

•       Sign up for a self-evaluation

Anyone who receives a Dividend worth more than £10,000 must file a self-assessment tax return. If a person regularly files a tax return but doesn't this year, they must register by the fifth of October at the latest. This is the tax year in which the money was earned. It's usually ideal to do the task earlier if at all possible.

Please get in touch with us at info@cheylesmore.com if you need assistance with your Dividend Tax.