What is self-assessment income tax?
If you have income outside PAYE employment, such as self-employment profit, rental income, dividends, or savings interest, you must declare it through a self-assessment tax return. The deadline for online returns is 31 January following the end of the tax year. Late filing attracts an automatic £100 penalty.
How are dividends taxed?
Dividends are taxed at preferential rates compared to employment income. The first £500 is tax-free. Above that, basic rate taxpayers pay 8.75%, higher rate taxpayers pay 33.75%, and additional rate taxpayers pay 39.35%. Dividends sit on top of all other income for band purposes.
What is Class 4 National Insurance?
Self-employed people pay Class 4 NI at 6% on profits between £12,570 and £50,270, and 2% above £50,270. Class 4 is paid through self-assessment alongside income tax. Class 2 NI is now voluntary for most self-employed people, though paying it can protect entitlement to the state pension and benefits.