Limited Company Dividend Tax 2026/27

If you own a limited company in the UK, the way you pay yourself in 2026/27 has not got any kinder. The dividend allowance still sits at £500, dividend tax rates have not moved, and the gap between salary and dividends keeps shrinking. Directors who used to wave the rules through with their bookkeeper now need to plan each quarter.

This guide walks through limited company dividend tax for the 2026/27 year. It covers the rates, the £500 allowance, how to mix salary with dividends, and the filing traps that catch first-year directors.

How UK dividend tax works in 2026/27

A dividend is a share of company profit paid to shareholders. Your company pays corporation tax on profit first. You then declare a dividend from what is left, and the personal tax falls on you, not the company.

You pay dividend tax on amounts above the £500 dividend allowance. The rate depends on which Income Tax band the dividend falls into when stacked on top of your salary and other income.

The Spring Statement 2026 raised the basic and higher dividend rates by 2 percentage points from 6 April 2026. The additional rate was left alone. For 2025/26 the rates were 8.75% / 33.75% / 39.35% — older planning sums will under-state the tax bill.

Two points trip up directors. First, the dividend allowance does not add to your personal allowance — it sits inside whichever Income Tax band you are in, but it still uses up your basic rate band. Second, dividends are not earnings, so you do not pay National Insurance on them.

You can check the live rates on the HMRC page Tax on dividends.

The dividend allowance — what changed and what stays

The £500 allowance is the smallest it has been since dividend tax was reformed in 2016. The history matters because many long-running directors still plan on old numbers.

• 2016/17 to 2017/18: £5,000 allowance.
• 2018/19 to 2022/23: £2,000.
• 2023/24: £1,000.
• 2024/25 onwards: £500.

A director taking a typical small salary plus £45,000 in dividends used to keep the first £2,000 tax-free. They now keep only £500. The cash gap on the rest at the new basic rate (10.75%) is about £161 a year per director. Once a shareholder spouse is added, that doubles.

The allowance is still useful if you have small dividend income from a stocks ISA wrapper that has spilled over, or from a side-shareholding. But for owner-managers it no longer changes the planning sums.

For 2026/27, the government has confirmed the £500 figure stays. Treat any future cut as a possibility rather than a forecast.

Salary plus dividend split — a worked example

The standard owner-manager pay structure has not changed shape, only the numbers behind it. You take a salary that sits between the National Insurance primary threshold (£12,570) and the secondary threshold (£9,100), then top up with dividends. Salary is deductible against corporation tax. Dividends are not.

Take a director who needs £50,000 of personal income in 2026/27 and trades as the sole director-shareholder of a profitable company.

Option A — salary of £9,100, dividends of £40,900:

• Salary: £9,100 (covered by personal allowance, no Income Tax, no employee NI).
• Dividend: first £3,470 covered by remaining personal allowance, next £500 covered by dividend allowance, balance of £36,930 taxed.
• Basic-rate dividends £36,930 at 10.75% = £3,970 personal tax.
• Corporation tax saved on the £9,100 salary at 19% (small profit rate) = £1,729.
• Net cost to extract £50,000: roughly £2,240 after offsetting the corporation tax saving against personal tax. The 2-point rate rise costs this director about £739 more than the same plan would have done in 2025/26.

Option B — salary of £12,570, dividends of £37,430:

• Salary uses the personal allowance fully. Employer NI on the slice above £9,100 (£3,470 at 15%) = about £521 for the company.
• Dividend of £37,430: first £500 tax-free, balance £36,930 at 10.75% = £3,970.
• Corporation tax saved on £12,570 salary at 19% = £2,388. Employer NI is also deductible against corporation tax.
• Net cost is usually £100 – £300 lower than option A once the corporation tax relief is taken into account.

The right answer depends on whether the company is at the small profit rate (19%) or marginal relief band (effectively 26.5%). Higher corporation tax rates make a larger salary more attractive because the deduction is worth more.

When to declare a dividend (and when not to)

A dividend can only be paid out of distributable profit. That means retained earnings after all corporation tax is provided for. If your company has a loss-making year, you cannot legally pay a dividend, even if cash is sitting in the bank.

The board (which is often just you) must:

1. Confirm there is enough distributable profit, evidenced by management accounts.
2. Hold a board meeting and minute the decision — even a sole director needs the paper trail.
3. Issue a dividend voucher to each shareholder showing the amount and date.
4. Record the dividend in the company's accounting records.

HMRC and the courts have struck down "dividends" that were really loans because the paperwork was missing. The director then ended up paying the dividend tax and a Section 455 charge on the director's loan account.

Filing and reporting your dividends

You report dividend income on your self assessment tax return. For 2026/27 dividends, the deadlines are:

• Paper return: 31 October 2027.
• Online return and balancing payment: 31 January 2028.
• First payment on account for 2027/28: 31 January 2028.

You include each dividend in the dividend section of the SA100, plus on supplementary pages if you have foreign dividends.

If your only untaxed income is dividends below £10,000, HMRC may collect the tax through PAYE by adjusting your tax code. You still have to tell them — they will not work it out from your company's accounts. The cleanest route is a self assessment in any year you pay yourself dividends.

Director dividend tax records to keep

HMRC asks for five years of records after the 31 January filing date. Keep:

• Dividend vouchers (one per shareholder per dividend).
• Board minutes approving each dividend.
• Bank statements showing the transfer from company to personal account.
• Year-end accounts showing distributable reserves at the time of each declaration.

Spreadsheet-only records have failed enquiries. A dated PDF voucher signed by the director is the minimum.

Five mistakes that cost dividend-paying directors money

1. Paying dividends when there are no distributable profits. A "dividend" paid from an overdrawn reserve becomes a director's loan. That triggers a Section 455 charge (currently set to match the higher dividend rate) if not repaid within nine months of the year end, plus possible benefit-in-kind tax on the implied interest. Check the current rate with your accountant — Section 455 tracks the dividend higher rate set by Finance Act.
2. Forgetting the dividend allowance only covers £500. Many directors still plan as if £2,000 is tax-free. The extra £1,500 of taxable income at the higher rate is £506 of personal tax you did not budget for.
3. Missing the 60-day rule on share transfers. If you transfer shares to a spouse mid-year to use their basic rate band, the transfer must be a genuine gift of beneficial ownership before the dividend is declared. Backdating a transfer to suit a dividend is settlements legislation territory and HMRC will challenge it.
4. Forgetting employer NI on the higher salary option. Above the £9,100 secondary threshold, the company pays employer NI at 15% on every pound of salary. It is still tax-deductible, but it is real cash out the door.
5. Treating dividends as guaranteed income for mortgages and credit. Lenders look at two to three years of accounts and SA302 forms. Switching from salary to a dividend-heavy split in the year you apply for a mortgage often shows lower assessable income, not higher.

A note on the marginal relief band

If your company's profits sit between £50,000 and £250,000, you pay corporation tax at an effective rate of about 26.5% on the marginal slice. That makes salary deductions worth more. Many directors who used to set salary at £9,100 now set it at £12,570 to claim a bigger corporation tax deduction. Your accountant should rerun the maths if profits cross either threshold.

This article is general guidance, not personal tax advice. Speak to a qualified accountant before acting on it.