Dividend Tracking Made Easy

Dividends are taxed at different rates depending on your total income. After your £500 tax-free dividend allowance, basic rate taxpayers pay 8.75%, higher rate taxpayers pay 33.75%, and additional rate taxpayers pay 39.35%. Dividends are taxed after your other income, so they often push you into higher tax bands.

The dividend allowance for 2024/25 is £500, reduced from £1,000 in 2023/24. The government has confirmed the allowance will remain at £500 for 2025/26. This means the first £500 of dividend income you receive each tax year is tax-free, regardless of your other income.

In most cases, yes. Dividends avoid National Insurance contributions entirely, while salary attracts both employee NI (8%) and employer NI (13.8%). The optimal strategy for most directors is to pay a small salary up to the NI threshold (around £12,570) to maintain state pension credits, then take the rest as dividends from company profits.

You can only pay dividends when your company has sufficient retained profits (also called reserves). You cannot pay dividends from share capital or loans. Before declaring a dividend, you must ensure your company has enough accumulated profits after paying corporation tax and covering all liabilities. Paying dividends without adequate profits is illegal and can result in personal liability.

Yes, you must create a dividend voucher for every dividend payment. The voucher should include the company name and registration number, shareholder name and address, payment date, dividend amount, and a reference to the board resolution. These vouchers are essential records for HMRC and your Self Assessment tax return.

Report your total dividend income on your Self Assessment tax return in the employment section or the additional information pages if dividends exceed £10,000. You'll need to add up all dividends received in the tax year (6 April to 5 April), including from all companies. Keep your dividend vouchers as evidence in case HMRC requests them.