Finance · 28 March 2022

How Much Dividend Can I Pay Myself?

How Much Dividend Can I Pay Myself

How much dividend can I pay myself? This is a commonly asked question among business owners. In the UK, you can pay yourself a dividend from the company you own. This is a payment made to shareholders out of profits, and it’s a great way to take money out of your business without having to pay income tax.

But are there any regulations concerning dividends? And will you really earn more paying yourself this way?

In this article, we’ll explain everything you need to know about paying dividends in the UK so you can maximise your company’s profitability.

What is a Dividend?

A dividend is a distribution of profits made by a company to its shareholders. This can be in the form of cash or shares, and it’s typically paid out quarterly. Companies will often offer a dividend as an incentive for investors to buy shares, and it’s also seen as a way to reward shareholders for their loyalty.

In the UK, there are two types of dividends:

  • An interim dividend – Paid out before the company’s financial year-end.
  • A final dividend – Paid after the company’s accounts have been approved by shareholders.

Which Companies Can Pay Dividends?

In the UK, any company limited by shares can pay dividends. This includes public limited companies, private companies limited by shares and unlisted public companies.

If you’re a sole trader or in a partnership, you can’t technically pay yourself a dividend as there’s no legal entity to do so. However, you can take money out of the business via other methods such as salary or drawings.

How to Pay Out Dividends

Paying dividends is a two-step process:

  1. Your company declares the dividend – This is done at a board meeting, and the directors will vote on whether or not to pay a dividend. If the decision is made to go ahead, the directors will need to set a date for when it will be paid.
  2. Payment is made – Dividends are typically paid out quarterly, but they can be paid more or less frequently. The money will be transferred from your company’s bank account to your account on the date that was set.
It is very important that HMRC is notified of any dividends that are paid out by your company. This can be done via the online service, and you’ll need to provide information such as the amount of the dividend, the date it was paid, and who received it.

You also need to keep records of all dividends you are paid so that you can declare them on your Self-Assessment tax return.

dividend taxes

Tax-Free Allowance

In the UK, you have a personal tax allowance of £12,500 which is the amount of money you can earn before you start paying income tax. On top of this, there’s also an additional dividend allowance of £2,000. This means that you can earn up to £14,500 in dividends without having to pay any tax on the earnings.

However, it’s important to note that this allowance is only for dividend income – you’ll still need to pay tax on other sources of income such as salary or interest from savings.

The Tax Brackets After That

Once you start earning more than £14,500 in dividends, you’ll need to start paying tax. The amount of tax you pay will depend on which tax bracket you fall into:

  • Basic rate – 7.5% (for dividend earnings between £14,500 and £50,000)
  • Higher rate – 32.5% (for dividend earnings between £50,001 and £150,000)
  • Additional rate – 38.1% (for dividend earnings above £150,000)
If we compare that to the tax rates for income you can see why receiving money through dividends rather than through a salary can be beneficial:

  • Income tax basic rate – 20% (for income between £12,500 and £50,000)
  • Income tax higher rate – 40% (for income between £50,001 and £150,000)
  • Income tax additional rate – 45% (for income above £150,000)
As you can see, the rates for dividend tax are lower than the corresponding rates for income tax so you could potentially make a lot more money.

When Are You Allowed to Pay Dividends?

Your company can only pay dividends if it’s profitable and has enough cash to cover the payment. This means that you can’t pay dividends if your company is loss-making or doesn’t have enough money in the bank.

The directors of the company also have a responsibility to make sure that the dividend is fair and reasonable. This means taking into account things like the company’s current financial position, future prospects, and any other commitments that it has.

It can damage your company’s reputation if you are seen to be paying huge amounts of dividends out to shareholders whilst the company is loss-making or has other financial problems.

Why Dividends Can Be Better Than Salary

There are a few reasons why you might want to pay yourself via dividends rather than salary:

The first reason is that, as we’ve seen, the tax rates for dividends are lower than the corresponding rates for income. This means that you could potentially make more money by taking dividends rather than salary.

The second reason is that dividends are only paid out of profits, so you’re not taking money away from the company that could be used to invest in things like new products or staff.

The third reason is that dividends can be a good way to reward yourself for the work you’ve put into the company. If the company is doing well, then you’ve played a big part in that and so it’s only fair that you should benefit from it.

Example Scenarios

Here are a few example scenarios to show how this might work in practice:

Scenario One: You’re a sole director and shareholder of a company that made a £50,000 profit last year. You decide to take the full £12,500 personal allowance as salary and the rest as dividends. You then get an additional £2,000 tax-free dividend allowance. This means you’ll pay tax on £35,500 of dividend income at the basic rate of tax (7.5%), which comes to £2662.50.

Scenario Two: You’re a shareholder of a company that made a £100,000 profit last year. Again, you take the full £12,500 personal allowance as salary and the rest as dividends. You’ll pay tax on £85,500 of dividend income at the higher rate of tax (38.1%) which comes to £32,657.50.

In neither example will you have to pay any income tax or National Insurance Contributions even though you’ve received a significant amount of money from the company.

A Summary of the Pros and Cons of Paying Yourself Dividends

There are a few pros and cons to taking dividends rather than salary:


  • You can potentially make more money as the tax rates on dividends are lower than for income.
  • Dividends are only paid out of profits, so you’re not taking money away from the company that could be used to invest in things like new products or staff.
  • Dividends can be a good way to reward yourself for the work you’ve put into the company.


  • You may have to pay more tax if the company makes a loss in future years as you’ll no longer be able to offset losses against your salary.
  • Dividends are paid on post-tax profits so you can’t use them to reduce your overall tax bill.
  • Dividends can only be paid by certain types of businesses so you may not be able to take them if you’re self-employed or a sole trader.
board of directors

Director’s Role in the Decision

The decision of whether or not to pay dividends is ultimately up to the directors of the company. They will need to take into account the company’s financial situation, its future plans, and the tax implications of paying dividends.



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