A dividend is a portion of profits that a limited by shares company pays to a shareholder (member) in exchange for their investment in the business.

The amount of money distributed as dividend payments is based on each member’s percentage of shareholdings, and how much surplus income the company has available at that time.

How much tax will I pay on dividends?

Dividends are paid from post-tax profits, i.e. the surplus income that’s left over after the company has accounted for all of the tax, bills, and other liabilities due to be paid in the tax year.

Dividend income is not distributed or taxed at source through Pay As You Earn (PAYE) like salaries and wages. Instead, shareholders are personally responsible for declaring their dividend income through Self Assessment and paying tax on dividends at the end of the tax year.

The first £500 of dividend income in a year is tax-free. Additionally, no tax is payable on any income that falls within the shareholder’s Personal Allowance (£12,570 for the 2024/25 tax year).