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Dividend tax increase

From 6th April 2022 if you pay Dividend tax the new NHS Levy will be applicable to you. You will notice the increase of 1.25%

The dividend ordinary rate will be set at 8.75%, the dividend upper rate will be set at 33.75% and the dividend additional rate will be set at 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.

The government has not indicated as to whether or not any changes to the tax-free dividend allowance will be implemented in 2022/2023. They have not stated if there would be any amendments to the basic or high rate tax bands either, it’s apparent they are playing their cards close to their chest on this subject. Unfortunately this means that we cannot make accurate predictions when it comes to the increased tax burden for individuals who receive fixed rate dividends.

If you have an overdrawn director’s loan account the changes will also have a wider impact on this as well.

The rate of tax applied to overdrawn director’s loan account is linked to the higher rate of dividend tax. This means the current tax rate of 32.5% on overdrawn loan accounts will increase from 32.5% to 33.75%. This makes it particularly important for directors to keep a close eye on their personal drawings!

Are you a Scottish Taxpayer?

Taxpayers in Scotland will unfortunately feel the impact more.

Scottish taxpayers who have employment earnings between £43,662 and £50,270 per annum will have a marginal tax rate of 54.25% applied to that part of their income, from April 2022, compared to 33.25% for taxpayers elsewhere within the UK.

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