Use our salary & dividend tax calculator to find out how much tax you will pay and your take home pay based on your salary and annual dividend payments
If you’re self-employed and operating as a limited company you should already be familiar with the greater control, flexibility and tax-efficiency presented by structuring your remuneration through a combination of dividend payments and director’s salary.
Dividends are a portion of company profit that is paid to shareholders in exchange for their investment in the business. Various factors affect the dividend amount such as the amount of surplus income the company has available and the percentage of shareholdings the shareholder has.
Dividends are calculated by distributing the profits a company has made after corporation tax, currently at a rate of 19%, has been applied. In most cases dividends are taxed after other income sources have already been taxed.
Unlike with salaries and wages, dividend income is not taxed at source via Pay As You Earn (PAYE). Recipients are responsible for declaring their dividend income to HMRC by completing a self-assessment tax return at the end of each tax year.
Dividends are usually distributed quarterly but as a contractor operating as a limited company, you have flexibility and could pay yourself dividends annually, twice per year, monthly or whenever your company has surplus funds available.
Calculating tax on dividends works more or less in the same way as the tax on any other income. The essential distinction is the dividend tax rates. For the 2022/23 financial year (6th April 2022 – 5th April 2023), income from dividends is taxed as follows:
- £0 – £12,570 | 0% (Personal Allowance)
- £12,571 – £50,270 | 8.75% (Basic Rate)
- £50,271 – £150,000 | 33.75% (Higher Rate)
- Over £150,000 | 39.35% (Additional Rate)
In addition to the £12,570 tax-free personal allowance, it’s important to note that you don’t pay any dividend tax on the first £2,000 you receive in dividends, no matter how much other income you receive. This means you can receive £14,750 dividend income tax-free this financial year, providing you have no other taxable income.
If your salary is between £12,570 and £50,270 it will be taxed at 20% and a 12% national insurance contribution is levied against it. That’s 32% tax against salaried earnings; a significantly higher tax rate than you’d pay against dividends in the basic rate band.
No tax has to be paid on dividends from shares held in an ISA, and your dividend allowance is unaffected. Up to £20,000 can be saved in stocks & shares ISAs in the 22/23 tax year with no tax liability. Furthermore, capital gains tax isn’t payable against any profits from investments in your stocks & shares ISAs.
Our combined salary tax calculator and dividend tax calculator enables you to easily calculate how much income tax and tax on dividends you will pay based on your current salary, and the annual dividend payments you receive to work out your take home pay. Simply enter your gross salary and the amount of dividends you’ll receive this tax year.
Contact us today if you need expert advice on improving your tax-efficiency, company incorporation or self-assessment tax returns.
Contact Gorilla Accounting
We understand that each person’s circumstances are different and there is a lot to take into account.
We don’t want you to be overwhelmed – which is why we’re here to help.
Simply give us a call on 0330 107 9676 and have a quick chat with one of our expert contractor accountants
*The information presented by the contractor tax calculator is for illustrative purposes only and merely produces a generic guide to your expected take home pay based on the information provided. Gorilla Accounting will accept no liability for any loss suffered for any reliance placed on the above.
