When should you declare your dividend income?

Dividends are an efficient method to supplement your main income, offering notable tax advantages over earnings subject to Income Tax.

So, what is dividend income and when is taxation applicable?

When a company generates profit, it may distribute a portion of these profits to its shareholders as dividends.

These distributions can originate from stocks, mutual funds and investment trusts, playing a crucial role in the financial strategy of investors seeking either income or capital growth through reinvestment.

HM Revenue & Customs (HMRC) requires the disclosure of dividend income and is increasing its efforts to identify and address non-compliance.

Recently, HMRC has been actively reminding directors and business owners of their duty to report dividend income, offering them the opportunity to disclose any previously unreported dividends or confirm the accuracy of their reported income.

Neglecting this responsibility could result in substantial penalties, including fines and interest on the unpaid tax.

The requirement to report dividend income varies depending on whether you submit your taxes through Self-Assessment or if your Income Tax is managed by your employer.

Both situations come with specific guidelines to ensure compliance and avoid penalties.

Who should pay Dividend Tax and what are the rates?

Fortunately, if your dividend income is below £1,000, you are exempt from tax (this limit will decrease to £500 from April 2024). Above this threshold, the tax rate applied corresponds to your Income Tax band:

  • Basic rate: 8.75 per cent
  • Higher rate: 33.75 per cent
  • Additional rate: 39.35 per cent

Reporting taxes through Self-Assessment

If you file your taxes using Self-Assessment, reporting dividend income is straightforward.

HMRC offers a comprehensive guide for including dividend income in your tax return. It is essential to keep track of the deadline for filing your tax return, which falls on 31 January 2025.

Maintaining precise and thorough records of your dividend income received during the tax year is vital for this purpose. Doing so ensures you can report your income accurately and promptly.

For those not using Self-Assessment

Not all UK residents need to file a Self-Assessment tax return.

Those whose taxes are typically deducted at source, like PAYE employees, might not need to file.

However, if you receive dividend income, you still have responsibilities to fulfil. You can report this income by contacting HMRC to adjust your tax code or to declare additional income.

In certain cases, receiving dividend income may require you to submit a Self-Assessment tax return. Should this be necessary, it is highly advisable to consult with an accountant.

What to do if you have forgotten to declare your dividend income

If you have previously forgotten to report dividend income, it is important to address this oversight promptly to avoid potential legal consequences.

HMRC provides a voluntary disclosure opportunity aimed at encouraging individuals to step forward and regularise their tax affairs, potentially reducing penalties and interest charges.

This involves contacting HMRC, explaining the situation, and adhering to their instructions to settle any tax due.

Avoiding complications with undeclared dividend income

To maintain tax compliance, it is essential to stay organised and diligent.

Regularly review your investment portfolio and financial records to ensure all dividend income is accurately reported.

Seeking advice from a tax adviser can further guarantee the comprehensiveness and accuracy of your tax returns. 

For expert tax advice, please get in touch with our team today.

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