If you take dividends from your company, the same payment may now leave you with less to spend. Dividend tax rates increased on 6 April 2026, so a salary-and-dividend arrangement that worked last year deserves a fresh look.
For directors who are also shareholders, the practical questions are how much to set aside for tax, whether their income mix still suits them and what the business can afford to distribute.
What Has Changed?
For the 2026/27 tax year, running from 6 April 2026 to 5 April 2027, the dividend tax rates are:
- Basic rate: 10.75%, up from 8.75% in 2025/26
- Higher rate: 35.75%, up from 33.75%
- Additional rate: unchanged at 39.35%
The first two rates have risen by two percentage points. The annual dividend allowance remains £500, and dividend income covered by any available Personal Allowance is still tax-free. These are the current rules confirmed by HMRC, rather than a forecast of possible Budget changes.
The dividend rates apply across the UK. Your other income matters: dividends are added to it when working out which bands apply, and a payment may fall across more than one band.
What Does This Mean for Take-Home Pay?
Consider a director receiving a £12,570 salary and £30,000 in dividends in each tax year, with no other income or reliefs and the full Personal Allowance available. The salary uses the Personal Allowance, and all the dividends fall within the basic-rate band.
After the £500 dividend allowance, £29,500 is subject to dividend tax:
- In 2025/26: £29,500 × 8.75% = £2,581.25
- In 2026/27: £29,500 × 10.75% = £3,171.25
The same £30,000 dividend therefore leaves £590 less after dividend tax, equivalent to about £49 a month. The rates for both years are available on GOV.UK.
This illustration isolates the dividend tax change. It is not a recommended salary level and excludes the company's Corporation Tax and employer National Insurance costs. Your own result will depend on your income, allowances and circumstances.
Should You Change Your Salary or Pension Contributions?
Review the combined company and personal tax cost before changing how you pay yourself. Salary can reduce taxable company profits, but Income Tax and employee and employer National Insurance may apply. Eligibility for Employment Allowance
can also affect the comparison, particularly for single-director companies.
Dividends do not attract National Insurance, but they come from profits available for distribution after allowing for Corporation Tax. Comparing the headline salary and dividend tax rates alone will not show the full cost.
Employer pension contributions may be worth reviewing where retirement saving fits your plans. Tax relief depends on the circumstances, including the business purpose of the remuneration package. Contributions also count towards your pension annual allowance, which can be lower for some people.
Money paid into a pension is subject to access restrictions, so consider your need for income now as well as later. Regulated financial advice may be appropriate alongside tax advice.
When Will the Higher Tax Need Paying?
Keep the tax year separate from the payment date. Your 2025/26 Self Assessment liability still uses that year's dividend rates, even though its balancing payment is normally due on 31 January 2027.
The increased rates apply to 2026/27. Any balancing payment for that year is normally due on 31 January 2028.
Where payments on account
apply, the January and July 2027 instalments will usually be based on your previous year's liability. They may therefore leave a shortfall even if your dividends stay the same. A higher first payment on account for the following year may also fall due in January 2028.
Updating your tax reserve now can make that payment easier to manage.
What Should You Review Now?
Before your next dividend, check:
- Your expected salary, dividends and other income for the whole tax year
- How much cash you need personally, after allowing for tax
- The company's available profits, tax liabilities and working-capital needs
- Whether pension contributions fit your longer-term plans
- Your forecast tax bill and payments already made or due
A healthy bank balance alone does not establish that a dividend is affordable or lawful. Keep accounts current and retain the required dividend minutes and vouchers.
At Radford & Sergeant, we can help you review your income mix, estimate the tax cost and plan withdrawals around your business and personal needs. Contact our Camberley or Reading team
to discuss your circumstances.
Information checked on 4 October 2026. This article provides general information, not personalised tax, legal or investment advice. Tax treatment depends on individual circumstances and rules may change.
