If you own a personal or family company, it’s worth reviewing your dividend strategy before the 2024/25 tax year concludes. In particular, you may want to decide whether paying a dividend ahead of 6 April 2025 could be to your advantage. In this case consider the following points:

1. Check Your Retained Profits

Dividends can only be paid out of retained profits—meaning post-tax profits that remain in the company after paying Corporation Tax. Before considering a dividend payment, confirm there’s enough in your retained profits to cover it.

2. Make Use of Unused Dividend Allowances

All individuals have a dividend allowance, regardless of their tax bracket. For 2024/25, the allowance is £500. If the shareholders haven’t fully used this allowance—and the company has sufficient retained profits—it usually makes sense to pay a dividend to use up any remaining allowance.

Remember:

• Dividends count as the top slice of your income.

• No tax is due on dividends covered by the allowance.

• The allowance still reduces the amount of your tax band that remains for other income.

If your company has multiple shareholders and an alphabet share structure (e.g., A shares, B shares, etc.), you can tailor dividend payments so each shareholder maximizes their own allowance. However, if everyone holds the same class of shares, dividends must be paid in proportion to shareholding.

3. Consider Unused Personal Allowance

Usually, it’s preferable to take a salary up to your personal allowance before paying dividends. But if certain shareholders (e.g., those not working in the company) haven’t fully utilized their 2024/25 personal allowance, paying additional dividends up to that unused allowance can be beneficial—any amount sheltered by the personal allowance won’t attract further tax.

4. Use Up Your Basic Rate Band

If you need funds outside of the company and you still have room in your basic rate band for 2024/25, think about paying a dividend before 6 April 2025. Within the basic rate band, dividends are taxed at 8.75%. If you delay and push those dividends into the higher or additional rate bands in 2025/26, you could face a tax rate of 33.75% or 39.35% instead.

5. When It’s Better to Leave Profits in the Company

If you’ve already used up both your dividend allowance and personal allowance—and you don’t actually need the money right now—it may be wiser to leave the profits in the company. Paying a dividend before the end of the tax year when there’s no allowance to offset it against will generate a tax bill you might otherwise avoid by waiting.

Final Thoughts

Deciding whether or not to pay a dividend before the end of the 2024/25 tax year involves weighing factors like leftover allowances, personal allowances, and your cash needs. Always keep an eye on how much of your personal and dividend allowances remain unused, and consider whether the dividend will push you into a higher tax band.