Dividends are distributions of profits made by companies to their shareholders. Dividends can be subject to income tax, but the tax treatment of dividends depends on the individual's income and tax status.

As of the tax year 2022/23, the UK has a dividend allowance of £2,000 per tax year. This means that the first £2,000 of dividends received are tax-free. Dividends above this allowance are subject to income tax at different rates depending on the individual's income tax band.

For basic rate taxpayers (those earning up to £50,270 in 2022/23), dividends above the £2,000 allowance are taxed at a rate of 7.5%. For higher rate taxpayers (those earning between £50,271 and £150,000 in 2022/23), dividends above the £2,000 allowance are taxed at a rate of 32.5%. For additional rate taxpayers (those earning over £150,000 in 2022/23), dividends above the £2,000 allowance are taxed at a rate of 38.1%.

It's worth noting that the dividend allowance is separate from the Personal Allowance, which is the amount of income that an individual can earn tax-free. The Personal Allowance for 2022/23 is £12,570. If an individual has other sources of income in addition to dividends, their total income will determine their tax band and the amount of tax they pay on their dividends.

In the UK, companies are required to deduct tax from any dividends paid to shareholders, and this is known as the 'dividend tax credit'. However, since 2016, the dividend tax credit has been abolished, and all dividends are now taxed based on the rates mentioned above.

Individuals in the UK are required to report any dividends received on their self-assessment tax return, and pay any tax due on these dividends.