Dividend Allowance

There are different rules for tax on dividends.

Dividend allowance for tax year 2023 to 2024 is £1000. 

The tax you pay depends on which Income tax band you're in.              

Tax band             Tax rate on dividends over your allowance

Basic rate             8.75%

Higher rate            33.75%

Additional rate       39.35%

National Insurance classes

The class you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.

Who pays:

Class 1          Employees earning more than £242 a week and under State Pension age - they’re automatically deducted by your employer

Class 1A or 1B       Employers pay these directly on their employee’s expenses or benefits

Class 2          Self-employed people - you don’t have to pay if you earn less than £6,725 a year (but you can choose to pay voluntary contributions)

Class 3          Voluntary contributions - you can pay them to fill or avoid gaps in your National Insurance record (currently rate is £17.45 a week or £907.40 a year)

Class 4          Self-employed people earning profits over £12,570 a year

If you’re employed

You pay Class 1 National Insurance contributions. The rates for most people for the 2023 to 2024 tax year are:

Your pay                                                               Class 1 National Insurance rate

£242 to £967 a week (£1048 to £4189 a month)     12%

Over £967 a week (£4,189 a month)                       2%

If you're self-employed

You usually pay 2 types of National Insurance, depending on your profits:

Class 2 if your profits are £6,725 or more a year

Class 4 if your profits are £12,570 or more a year

You work out your profits by deducting your expenses from your self-employed income.

How much you pay

Class            Rate for tax year 2023 to 2024

Class 2           £3.45 a week

Class 4           9% on profits between £12,570 and £50,270

                      2% on profits over £50,270 per year

If you're employed and self-employed

You might be an employee but also do self-employed work.

In this case, your employer will deduct your Class 1 National Insurance from your wages,

and you have to pay Class 2 and 4 payments for your self-employed work (depending on your profits).

There are different National Insurance rules for Directors and Landlords.

National Insurance for Company Directors

Directors are classed as employees and pay National Insurance on annual income from salary and bonuses over £9,500.

If the directors own shares in a company, they will pay tax on dividends that go above the dividend allowance in the tax year.

You have tax-free allowances for:

• savings interest
• dividends, if you own shares in a company

You may also have tax-free allowances for:

• your first £1,000 of income from self-employment - this is your ‘trading allowance’
• your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)

Find out whether you’re eligible for the trading and property allowances.

You pay tax on any interest, dividends or income over your allowances.

Trading allowance

The trading allowance is a tax exemption of up to £1,000 a year for individuals with trading income from:

• self-employment
• casual services, for example, babysitting or gardening (help sheet 325 has more information about other taxable income)
• hiring personal equipment, for example, power tools

If your annual gross income from these is £1,000 or less, you do not need to tell HMRC, unless:

• you cannot use the allowances
• you must register for Self Assessment and declare your income on a tax return

You must tell HMRC if you have:

• gross trading income over £1,000 - register for Self Assessment
• other gross income over £1,000 up to £2,500 - contact HMRC
• other income over £2,500 - register for Self Assessment

This allowance does not apply to trading income from a partnership.

Property allowance

The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.

If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

If your annual gross property income is £1,000 or less, you will not need to tell HMRC, unless you cannot use the allowances. If it’s higher, you’ll need to declare your property income.

You must tell HMRC if you have:

• gross property income over £1,000 up to £2,500 - contact HMRC
• property income over £2,500 - register for Self Assessment

You cannot use this allowance on income from letting a room in your own home under the Rent a Room Scheme.