If you run a limited company and pay yourself through dividends, your tax bill went up on 6 April 2026. HMRC raised the basic and higher rates of dividend tax by two percentage points - the first increase in four years. For a director taking £50,000 a year from their company, that means roughly £600 more in tax annually.
TL;DR: From 6 April 2026, the basic rate of dividend tax is 10.75% (was 8.75%) and the higher rate is 35.75% (was 33.75%). The additional rate stays at 39.35%. The £500 dividend allowance is unchanged. The salary-plus-dividends structure still works for most directors, but the maths has shifted.
What Are the New Dividend Tax Rates?
The rates that apply from 6 April 2026 are straightforward. Basic rate taxpayers - those with total income between £12,571 and £50,270 - now pay 10.75% on dividends above the £500 allowance. Higher rate taxpayers, earning between £50,271 and £125,140, pay 35.75%. The additional rate for income above £125,140 remains at 39.35% (HMRC, 2026).
Here is how the rates compare to last year:
| Tax Band | 2025-26 Rate | 2026-27 Rate | Change |
|---|---|---|---|
| Basic rate (£12,571 - £50,270) | 8.75% | 10.75% | +2% |
| Higher rate (£50,271 - £125,140) | 33.75% | 35.75% | +2% |
| Additional rate (over £125,140) | 39.35% | 39.35% | No change |
The government expects this increase to raise around £280 million in 2026-27, rising to £1.39 billion by 2030-31 (House of Commons Library, 2025).
What Happened to the £500 Dividend Allowance?
The dividend allowance stays at £500 for 2026-27. That figure has been falling steadily - it was £2,000 before April 2023, dropped to £1,000 in 2023-24, and reached £500 from 2024-25 onwards (1st Formations, 2026). In our experience, the allowance barely covers a single quarterly dividend payment for most directors, so it should not factor heavily into your planning.
The £500 sits on top of your personal allowance. So if dividends are your only income above salary, the first £12,570 is covered by the personal allowance, the next £500 by the dividend allowance, and everything after that gets taxed at the rates above.
How Much More Will You Actually Pay?
The real question for most company directors: what does this cost in practice? The answer depends on how much you withdraw.
A director taking £50,000 a year - £12,570 as salary and the rest as dividends - will pay around £600 more in dividend tax compared to 2025-26 (GB News, 2026). At £100,000 of total withdrawals, the extra bill climbs to roughly £1,400 per year because more of that income falls into the higher rate band (Sterlinx Global, 2026).
What we see most often is directors underestimating this because the headline number - two percentage points - sounds small. But applied across a full year of dividends, it adds up quickly.
Does the Salary-Plus-Dividends Structure Still Work?
Yes. For most limited company directors, drawing a salary up to the personal allowance and taking the rest as dividends remains the most tax-efficient approach for 2026-27. The gap between this structure and a pure salary has narrowed, but it has not closed.
The optimal director's salary for 2026-27 is £12,570 - matching the personal allowance. At that level, you pay zero income tax and zero employee National Insurance on salary. You also build National Insurance credits towards your state pension, which matters more than many directors realise.
After salary, dividends up to £37,700 stay within the basic rate band. The difference between the most and least efficient salary-dividend combinations can still be over £1,800 per director (Massey Accounting, 2026). For a husband-and-wife company claiming the Employment Allowance, the combined saving can reach £3,700 in a single tax year (1st Formations, 2026).
What About Employer National Insurance?
The employer NIC rate remains at 15% with a secondary threshold of £5,000 per year - both unchanged from 2025-26 (PayFit, 2026). That £5,000 threshold, down from £9,100 before April 2025, stays fixed until at least April 2028.
If your company qualifies for the Employment Allowance, it absorbs employer NIC on director salaries up to the allowance amount. One question clients always ask is whether they can claim - the answer is yes, as long as your company has at least one other employee beyond the director. Single-director companies with no additional staff cannot claim it, and neither can companies whose employer NIC bill exceeded £100,000 in the prior year.
Should You Change Your Dividend Strategy?
For most directors, no drastic changes are needed. The structure still delivers genuine tax savings compared to salary alone. But three situations warrant a review with your accountant:
Income near the higher rate threshold. If your total income sits close to £50,270, even a small increase in dividends could push you from 10.75% to 35.75%. Timing dividend payments or spreading them differently across tax years can help.
Retained profits are building up. If your company has been accumulating profits that you plan to extract, the cost of doing so through dividends just went up. Pension contributions, which attract corporation tax relief, might be worth considering as an alternative.
You are approaching the £125,140 threshold. At that level, you lose the personal allowance entirely. Combined with the 35.75% higher rate, the effective marginal rate on dividends is punishing. Careful structuring matters here.
FAQ
Do I need to do anything differently when filing my 2026-27 self-assessment?
Your self-assessment return for 2026-27 will not be due until 31 January 2028. The new rates apply automatically - HMRC calculates dividend tax based on the rates for the year in which dividends are received. You do not need to register separately or change your tax code.
Are dividends still better than salary for limited company directors?
In most cases, yes. Despite the 2% increase, dividend tax rates remain lower than the combined income tax and National Insurance you would pay on equivalent salary. A basic rate taxpayer pays 10.75% on dividends versus 20% income tax plus 8% employee NIC on salary.
Can I declare dividends from previous years' retained profits to avoid the new rates?
No. Dividend tax applies based on when you receive the dividend, not when the company earned the profit. Dividends paid after 5 April 2026 are taxed at the new rates regardless of when the underlying profit was generated.
What records do I need to keep for Making Tax Digital?
MTD for Income Tax, which started April 2026, applies to sole traders and landlords with income over £50,000 - not to dividend income from your company. Your company's corporation tax and your personal self-assessment remain separate processes. However, keeping clear records of dividend declarations, board minutes, and payment dates remains good practice.
Does the dividend allowance apply per person or per household?
Per person. If you and your spouse are both shareholders and directors, each of you gets a £500 dividend allowance. For a husband-and-wife company, that means £1,000 of dividends received tax-free between you.
Not sure how the new dividend rates affect your take-home pay? Talk to our team - we can review your salary and dividend structure and make sure you are set up for 2026-27.