Glossary

Dividend tax

Dividend tax is the personal income tax on dividends above the allowance — lower than salary rates and NI-free, which is why the mix is often efficient.

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On dividendsPersonal

Lower ratesThan salary

Definition

Dividend tax is the income tax an individual pays on dividends received above the tax-free dividend allowance, at rates that are lower than those on salary and carry no National Insurance.

In plain terms

When you take money out of your company as dividends, you pay tax on it personally — but at gentler rates than a wage, and with no NI. That is why a salary-plus-dividend mix is often efficient.

Why it matters for your company

Dividend tax is the personal cost of extracting profit, on top of the corporation tax the company already paid on that profit. Budgeting for it — usually via Self Assessment — is essential when planning how you pay yourself.