About the dividend tax calculator
Running a limited company offers numerous advantages, one of which is the ability to pay dividends. Dividends are a common way for business owners to extract profits from their companies, often resulting in significant tax savings compared to taking a salary. However, understanding how often you can take dividends and the tax implications is crucial for effective financial planning. Here is some general guidance about the dividend tax calculator:
Frequency of dividend payments
There is no legal limit to how often you can take dividends from your limited company. You can distribute dividends as frequently as you like—monthly, quarterly, or annually. The key considerations include:
- Profit availability: dividends can only be paid out of profits. Your company need to retain enough profits after accounting for the corporation tax and any other obligations.
- Documentation: each dividend payment must be properly documented.
- Tax planning: timing your dividend payments can impact the overall tax liability. Costly errors such as not having enough profits could lead to an overdrawn director loan account. Accrue Accounting reviews regularly with our clients the dividend tax calculation and optimises their dividend strategy.
Tax implications of dividends
Dividends are subject to different tax rates than salary. The tax you pay on dividends depends on your total income and which tax band you fall into. Here’s a breakdown for the 2024/25 tax year:
| Tax Band | Total Income Range | Tax Rate on Dividends |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 8.75% |
| Higher Rate | £50,271 – £125,140 | 33.75% |
| Additional Rate | Over £125,140 | 39.35% |
- Example:
- If your total income (salary + dividends) is £40,000, you will fall into the basic rate tax band for dividends, paying 8.75%.
- If your total income is £60,000, part of your dividends will fall into the higher rate tax band, resulting in a higher tax rate of 33.75% on that portion.
- Please bear in mind that you need to also take into account the corporation tax (which is between 19 and 25%).
Maximising Tax efficiency
To ensure you’re maximising your tax efficiency, consider these tips:
- Combine salary and dividends: taking a small salary up to the National Insurance threshold and the rest as dividends can minimise your tax liability. Finding the right balance can be tricky at times as you also need to consider your corporation tax.
- Use allowances: make full use of your personal allowance and dividend allowance (£2,000 for the 2024/25 tax year).
- Spouse’s allowance: If your spouse is a shareholder, consider distributing dividends to them to utilise their personal allowance and lower tax bands.
Why Switch to Our Accrue Accounting?
At Accrue Accounting, we specialise in helping limited companies manage their finances efficiently. Here’s why you should consider switching to us:
- Proactive Service: We proactively monitor your accounts, ensuring you’re always in the best possible tax position.
- Modern accounting practices with cloud accounting: our cloud accounting platforms provide real-time financial insights, making it easier for you to manage your business.
- Transparent Fees: We believe in clear and straightforward pricing, with no hidden charges.
Check out also our other online calculators here.
Let us help you make the most of your limited company’s finances.
Contact us today to discuss how we can support your business growth and financial health.
