Dividend tax rates 2026/27: A guide for limited company directors

17th September 2026

If you run a limited company, dividends are likely to be one of the main ways you take money out of your business. The attraction to dividend allowances is understandable; your company earns money, pays its business taxes, and you can then reimburse this money into your business, and distribute some of the remaining profits to your shareholders. This is undoubtedly an excellent way to reward stakeholders for their investment in its success.

Dividends, however, are not completely tax free. And from 6 April 2026, the dividend tax rates for basic and higher rate taxpayers increased, making it more important than ever for company directors to understand how dividend tax works.

For the 2026/27 tax year, the dividend tax rates are:

The £500 dividend allowance remains unchanged, but the basic dividend rate has increased from 8.75% to 10.75%, while the higher rate has increased from 33.75% to 35.75%. The additional rate remains at 39.35%.

If you are a limited company director, these changes can have a noticeable impact on the amount of personal tax you pay when extracting profits from your company.

Below, 99p Company Formations explains.

Important: Tax rules can be complicated and your personal circumstances will affect the amount of tax you pay. This article is for general information rather than personalised tax advice.

What is a dividend?

A dividend is a payment made by a company to its shareholders. If you own shares in your limited company, you may be able to receive dividends from the company's available profits.

Dividends are different from salary. A salary is normally paid to you for your work as an employee or director and is processed through PAYE. A dividend is a distribution to you because you own shares in the company.

Dividends are likewise subject to a different tax system. Dividends are paid from company profits after Corporation Tax. They are not an allowable business expense for Corporation Tax purposes in the way that a genuine salary generally is.

For 2026/27, companies with profits of £50,000 or less generally pay Corporation Tax at 19%, while companies with profits above £250,000 generally pay the 25% main rate. Companies between those thresholds may benefit from Marginal Relief. The Corporation Tax position is separate from the personal dividend tax you may subsequently pay.

Why did dividend tax rates increase in 2026?

The increase was announced as part of the government's changes to the taxation of dividend income. The government's stated aim was to increase the tax paid on dividend income and narrow some of the difference between taxation of income from work and income from assets.

What is the dividend allowance in 2026/27?

The dividend allowance is £500 for 2026/27. This means the first £500 of dividend income you receive during the tax year is taxed at 0%.

However, the £500 allowance still uses up part of your tax band. It is not an additional £500 of income that sits completely outside the tax calculation.

The dividend allowance is also separate from your Personal Allowance. For most people, the Personal Allowance is £12,570 for 2026/27. This is the amount of income you can normally receive before paying Income Tax, although it is reduced for individuals with adjusted net income above £100,000.

How do salary and dividends work together?

Many limited company directors receive a combination of salary and dividends.

For example, you might pay yourself:

• A salary through PAYE

• Dividends from your company

• Income from another job, pension, property or investments

These sources of income do not all receive the same tax treatment. Your salary is subject to Income Tax and potentially National Insurance through PAYE. Dividends are taxed separately at dividend rates.

However, your salary and other taxable income still affect which dividend tax band your dividends fall into.

This is why the order in which you calculate your income matters. Your non dividend income uses the available tax bands first, with dividends sitting on top. So a director who has already used their basic rate band through salary or other income may find that most or all of their dividends are taxed at the higher dividend rate.

What are the income tax bands for 2026/27?

For England, Wales and Northern Ireland, the standard Income Tax structure for 2026/27 is as follows:

How is dividend tax calculated?

Working out dividend tax can look complicated at first, but the basic process is fairly logical.

You need to consider:

1. Your total income for the tax year

2. Your Personal Allowance, if available

3. Your salary and other taxable income

4. Your dividend income

5. The £500 dividend allowance

6. Which tax bands your dividends fall into

Example salaries: 

Imagine you receive:

• £30,000 salary

• £20,000 dividends

• No other income

Your salary uses part of your basic rate band. Your dividends then sit on top of that income.

After accounting for the Personal Allowance and dividend allowance, part of the dividend income may fall within the remaining basic rate band and the remainder may fall into the higher rate band.

£12,570 salary and £75,000 dividends

Now consider a director receiving:

• £12,570 salary

• £75,000 dividends

• No other income

The salary uses the Personal Allowance, leaving the basic rate band available for dividend income. After the £500 dividend allowance, the dividends are split between the available basic rate and higher rate bands.

Using the 2026/27 rates:

• £500 falls within the dividend allowance

• £37,200 is taxed at 10.75%

• The remaining £37,300 is taxed at 35.75%

That produces dividend tax of: £3,999 + £13,334.75 = £17,333.75

Do you pay National Insurance on dividends?

Dividends do not attract employee National Insurance in the same way that salary does. This is one reason dividends have historically been popular with owner managed limited companies.

Do I have to report dividends to HMRC?

You may need to report your dividend income through Self Assessment.

If your dividends exceed both your unused Personal Allowance and the £500 dividend allowance, you generally need to tell HMRC and report the relevant income.

For the 2026/27 tax year, the tax year ends on 5 April 2027. If you are not already registered for Self Assessment and need to register because of your dividend income, the usual registration deadline is 5 October following the end of the tax year.

The online Self Assessment return and any tax due are generally due by 31 January following the end of the tax year.

For 2026/27, that means:

• Tax year ends: 5 April 2027

• Registration deadline, where applicable: 5 October 2027

• Online tax return and payment deadline: 31 January 2028

Ready to form your limited company? 

If you’re ready to begin your journey as a limited company director, 99p Company Formation’s company formation service helps you register your business quickly and easily, giving you the confidence that your company has been set up correctly from day one, including dividend agreements.

Ready to start your business? Register a limited company with 99p Company Formations today.