Dividend tax UK rates rose in April 2026 to 10.75% and 35.75%. What the £500 allowance covers, a worked director example, and salary vs dividends.
If you run a one-person limited company, April 2026 quietly made your usual pay strategy more expensive. The dividend tax UK rates went up, the allowance did not, and a lot of directors are still running last year’s numbers.
Here is what actually changed, what it costs on a typical director’s package, and whether the salary-and-dividend split is still worth it.
Dividends are paid out of company profit that has already been hit by corporation tax, they carry no National Insurance, and they sit on top of everything else you earn, so the rate you pay depends on where they land once your salary is stacked underneath.
That last part is the bit people get wrong. Dividends are the top slice of your income. They are not taxed in isolation, which is why any dividend tax UK figure you work out without adding your salary first will be too low.
From 6 April 2026 the ordinary rate and the upper rate each rose by two percentage points. The additional rate stayed put.
| Band the dividends fall into | 2025/26 | 2026/27 |
|---|---|---|
| Basic rate (ordinary) | 8.75% | 10.75% |
| Higher rate (upper) | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
The dividend allowance 2026/27 is £500, unchanged. The income tax thresholds are frozen too: personal allowance £12,570, higher-rate threshold £50,270, additional rate from £125,140. Those freezes run to 2030/31, which matters more than it sounds, because every pay rise you give yourself drags a bigger slice of your dividends up into the 35.75% band.
One trap worth naming early. The £500 allowance is taxed at 0%, but it still consumes part of whichever band your dividends sit in. It does not give you an extra £500 of basic-rate room. Treating it as bonus headroom is one of the most common reasons a January tax bill comes in higher than expected.
Take the classic setup the brief for this post describes, and the one most accountants still default to: a single director paying themselves a salary up to the personal allowance, then topping up with dividends.
Salary £12,570, dividends £30,000, no other income.
The salary uses the full personal allowance, so there is nothing left over to shelter the dividends. Every pound of dividend is taxable income from the first one, subject to the allowance.
Run the same package on last year’s 8.75% and the bill was £2,581.25. So the rate rise costs this director £590 a year for doing nothing differently.
There is employee National Insurance on the salary too. At £12,570 the salary sits right at the primary threshold, so employee NI is nil. Employer NI is the one that bites: the secondary threshold is only £5,000, and employer NI runs at 15% above it, which is £1,135.50 on a £12,570 salary. A single-director company with no other employees cannot claim the £10,500 Employment Allowance, so that cost lands in full.
Say the company has roughly the same profit available and the director takes it all as employment income instead. To put £42,570 in front of the director as salary:
Personal tax on the all-salary route is £8,400 against £3,171.25 on the dividend route, and the company pays £5,635.50 of employer NI rather than £1,135.50. Salary is deductible against corporation tax and dividends are not, which claws some of that back at 19% for a company under £50,000 of profit, but nowhere near enough to close a gap that size.
The dividend route still wins comfortably. The rate rise narrowed it. It did not reverse it.
A few situations where the default stops working and the numbers need re-running properly.
Your dividends cross £50,270 of total income. The moment they do, the excess is taxed at 35.75% rather than 10.75%. A director on £12,570 salary hits that ceiling at about £37,700 of dividends. Past that point every extra £1,000 of dividend costs £357.50 instead of £107.50, and taking the same money as pension contribution starts looking far better.
You have other income. Rental profit, a part-time PAYE job, savings interest, a pension in payment. All of it stacks underneath the dividends and pushes them up the bands. Directors who take a second job and keep the dividend plan unchanged are the ones who get the nastiest surprise.
Company profits are over £50,000. Corporation tax stops being a flat 19% and moves into marginal relief territory up to £250,000, where the effective rate on the next slice of profit is noticeably higher. The salary and dividend comparison shifts because salary is deductible and dividends are not.
You want the state pension record. A salary at or above the lower earnings limit protects your qualifying years. Dividends do nothing for your National Insurance record at all. This is the main argument for keeping a salary in the mix rather than going dividend-only.
Three things worth doing before the 2026/27 year runs out on 5 April 2027.
Keep every dividend voucher. Each one should record the amount and the date, and you will need them when you file. HMRC’s guidance on tax on dividends sets out the reporting thresholds if you want the official wording.
Changed: the ordinary rate is now 10.75% and the upper rate 35.75%, both effective 6 April 2026.
Did not change: the £500 dividend allowance, the 39.35% additional rate, the £12,570 personal allowance, the £50,270 higher-rate threshold, the 19% small profits corporation tax rate for companies under £50,000, and the basic logic that dividends avoid National Insurance while salary does not.
What that combination means in practice is that the strategy is the same and the maths is worse. Anyone who set up their salary and dividend split two or three years ago and has not touched it since is paying more than they think, and the frozen thresholds mean that gap widens every year.
Here is what I would check first if you are a director reading this in the middle of the tax year: pull your last dividend voucher, add up what you have already taken, and see how close you are to £50,270 of total income. That single number decides more about your dividend tax UK bill than anything else you can change between now and April.
If you want to see what a given salary and dividend split leaves you with after tax, the NetPay app works it out alongside your other income, so you can see exactly where the £50,270 line falls for you. Free to download.
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Above the £500 allowance, dividends in the basic-rate band are taxed at 10.75%, dividends in the higher-rate band at 35.75%, and dividends in the additional-rate band at 39.35%. The first two rates each rose by 2 percentage points on 6 April 2026. The additional rate did not change.
£500, taxed at 0%. It applies whatever your income band. One catch that costs people money: the allowance uses up part of the band your dividends sit in, so it does not widen your basic-rate band by £500.
For most one-person limited companies, yes. Dividends carry no National Insurance, so even after corporation tax and the higher 2026/27 rates they usually beat the equivalent salary. The gap has narrowed though, so the answer depends on your profit level and your other income.
If your dividends come to more than £500 in the tax year you normally report them through Self Assessment. For smaller amounts HMRC may collect the tax by adjusting your PAYE tax code instead. Register by 5 October following the end of the tax year if you are not already in the system.
Want to see your actual take-home pay?
NetPay UK works out your real net pay after tax, NI, pension and salary sacrifice, for hourly, shift and variable-income workers. Free to download.
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A note on financial advice: NetPay UK calculates take-home pay based on official HMRC tax rules. This article reflects rules in force at the time of publication (22 September 2026). Tax rules change. For complex situations, consult a qualified UK accountant or visit gov.uk/income-tax.
