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UK Dividend tax rates and thresholds for 2020/21

by | Apr 15, 2020 | Tax

September 2021 Update

The UK Government has announced that a 1.25% increase in dividend tax will be introduced from April 2022, to help support the NHS and the social care system.
We will continue to update our clients with further details in the coming weeks, however, this does not change our tax-efficient recommendation in regards to your salary and dividend structure.

A new tax year has just started, and whilst we all have other matters on our mind, it’s worth being aware of the full amount you can withdraw from the company tax-free, and at the basic rate of dividend tax.
Here are the summarized tax rates figures below.

Personal Tax Allowance and Directors Salary.

The Personal Tax Allowance (the amount you can earn before paying Income Tax) will remain at £12,500. The higher rate tax threshold (the amount at which you start paying tax at 40% or 32.5% on dividends) will remain at £50,000.
This means that you can take a basic salary of £8,784 (£732 per month) and dividends of £41,216 before you pay any higher rate tax.

Following the announcement in January 2020 regarding changes to the National Insurance thresholds, confirmed in the Budget on the 11th March 2020, it may be more tax-efficient to take a slightly increased salary of £9,492 (£791 per month) and make a payment of £97.15 National Insurance in Month 12 (March 2021). This will mean you are better off by £56 over the course of the year. You can take dividends of £40,508 with this salary, before paying any higher rate tax.

If you have other employees or directors, it may be beneficial to take a higher rate of pay as you can claim the employment allowance and not pay any employers NI up to £3,000.

For clients of Clever Accounts, we will normally contact you before April 20th to provide details of the various options and confirm which salary you want to take for the year. Please get in touch with your dedicated accountant, if you would like to discuss in more detail.

If you have other employees or directors, it may be beneficial to take a higher rate of pay as you can claim the employment allowance and not pay any employers NI up to £3,000.

Dividend Allowance

The tax-free Dividend Allowance of £2,000 will remain for the new tax year. This means you can receive dividends of £2,000 before they are taxed.

Help in paying yourself

We will provide ongoing advice and support to help you pay yourself in the most tax-efficient manner. Most limited company directors take a mixture of salary and dividend in which case we sort out your monthly PAYE returns and annual P60s. Our online accountancy softwaree will help you manage your cashflow and tell you of available funds that you could extract from your business while ensuring you keep hold of enough money to pay any future tax liabilities. This helps to prevent any nasty surprises!


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