What are dividends and will I have to pay Income Tax on them?

A dividend is a slice of a company’s profit that is given to the shareholders, which will be yourself if you operate your own limited company.

Dividend income you receive will not be subject to National Insurance contributions and the first £5,000 per annum will be tax-free (this will drop to £2,000 from 6th April 2018). Dividends above this level which fall within the basic rate tax bracket will be taxed at 7.5%, and if they fall into the higher rate tax bracket they will be taxed at 32.5%.