UK dividend tax for company owners
Dividend tax rates increased for 2026/27. The basic rate moved from 8.75% to 10.75% and the higher rate from 33.75% to 35.75%. If your extraction plan was modelled on last year's numbers, it is now understating the personal tax by two percentage points on most of the dividend.
The 2026/27 rates
| Band (taxable income) | Dividend rate 2026/27 | 2025/26 |
|---|---|---|
| Basic — up to £37,700 | 10.75% | 8.75% |
| Higher — £37,700 to £125,140 | 35.75% | 33.75% |
| Additional — over £125,140 | 39.35% | 39.35% |
The dividend allowance is £500, taxed at 0% and available to all taxpayers. It is an allowance, not a band: it uses up part of whichever band it falls in rather than sitting underneath them. The personal allowance remains £12,570 and is tapered by £1 for every £2 of income above £100,000.
A worked extraction
Take a director with a £12,570 salary (set at the personal allowance) taking £50,000 of dividends in 2026/27.
| Step | Amount | Rate | Tax |
|---|---|---|---|
| Salary | £12,570 | Covered by personal allowance | £0 |
| Dividend allowance | £500 | 0% | £0 |
| Dividend in basic band | £37,200 | 10.75% | £3,999 |
| Dividend in higher band | £12,300 | 35.75% | £4,397 |
| Total personal tax | £50,000 | £8,396 |
On the 2025/26 rates the same extraction cost £7,404. The rate change adds £992 for an identical dividend. Note the basic band is used up by salary plus the allowance: the first £37,200 of dividend fits, and the remainder crosses into the higher band at 35.75%.
We prepare accounts, Corporation Tax and Self Assessment work with a UK-qualified professional on the engagement.
Avail our UK tax desk servicesDividends are taxed twice, and are not deductible
This is the point that decides salary versus dividend. Salary is deductible against company profit; a dividend is a distribution of profit that has already borne Corporation Tax.
| £10,000 as salary | £10,000 as dividend | |
|---|---|---|
| Reduces company taxable profit? | Yes | No |
| Corporation Tax saved at 25% | £2,500 | £0 |
| Employer NIC at 15% | £1,500 | £0 |
| Employee NIC at 8% | £800 | £0 |
| Personal tax (basic rate) | £2,000 at 20% | £1,075 at 10.75% |
Dividends still win on personal tax and carry no National Insurance at all, but they buy no Corporation Tax deduction. With employer NIC at 15% and the main Corporation Tax rate at 25%, the arithmetic is genuinely close and turns on the company's marginal rate — a company inside the 26.5% marginal relief band values a deductible salary more highly than one paying 19%.
A dividend must be lawful before it is taxable
Lawfulness here is company law, not tax law: under the Companies Act 2006 a dividend can only be paid out of distributable reserves — accumulated realised profits less accumulated realised losses. Not cash in the bank, and not this month's sales.
A company with £60,000 in the bank but £15,000 of distributable reserves can lawfully declare £15,000. Declare £40,000 and the excess is an unlawful distribution, repayable by the shareholder, and HMRC may instead treat it as a director's loan — which brings its own charge and reporting. The bank balance is irrelevant to the test; it may be VAT and Corporation Tax you are holding for HMRC.
Each dividend needs a board minute declaring it and a dividend voucher per shareholder showing date and amount. Without contemporaneous paperwork there is nothing to distinguish a dividend from a loan, and the loan treatment is the expensive one.
Reporting and paying
Dividends are not taxed at source. They go on your Self Assessment return, and the tax is due with the 31 January balancing payment. Two consequences follow:
- Payments on account. Once your liability passes the threshold, HMRC asks for payments on account on 31 January and 31 July. See payments on account.
- The first year is the cash-flow shock. A first year of dividends produces a balancing payment plus a first payment on account in the same January, which can be roughly 150% of one year's tax in one month.
Where this goes wrong
- Modelling 2026/27 on 8.75%/33.75% — two points light across most of the dividend.
- Treating the £500 allowance as an extra band rather than as part of the band it falls in.
- Paying dividends from the bank balance instead of distributable reserves.
- Assuming dividends reduce the Corporation Tax bill. They do not.
- Forgetting the January double hit in the first dividend year.
Related: running payroll and Self Assessment deadlines.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
Are dividends paid before or after Corporation Tax?
After. Dividends come out of post-tax profits, so the company has already paid Corporation Tax on the money before you receive it and are taxed on it again personally.
What are distributable reserves?
Accumulated realised profits less accumulated realised losses. A dividend can only lawfully be paid from them. Paying when there are none makes the dividend unlawful and repayable.
Does a dividend reduce the company's Corporation Tax?
No. Dividends are a distribution of profit, not a deductible expense. Salary reduces taxable profit; dividends do not. That difference sits at the heart of the extraction decision.
What paperwork does a dividend need?
A board minute declaring it and a dividend voucher for each shareholder, with the date and amount. Without them, HMRC may recharacterise the payment as salary or a loan, both taxed less favourably.
Is the dividend allowance still available?
A dividend allowance exists but has been reduced repeatedly. Check the current figure for the relevant tax year rather than relying on a number from an earlier one.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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