What this means for you
If you run a limited company and pay yourself partly or wholly through dividends — a common structure for owner-directors of small UK companies — the tax you pay on those dividends went up from 6 April 2026. This applies for the 2026-27 tax year onwards, and it's worth understanding clearly, because it can affect the balance between salary and dividends that many small business owners use to pay themselves.
What changed
| Band | Old rate | New rate (from 6 April 2026) |
|---|---|---|
| Ordinary (basic) rate | 8.75% | 10.75% |
| Upper (higher) rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% (unchanged) |
Both the ordinary and upper rates increased by 2 percentage points. The additional rate, paid by the highest earners, stays the same at 39.35%.
The dividend allowance — the amount of dividend income you can receive each tax year before any dividend tax applies at all — remains at £500. This allowance has already been reduced sharply in recent years (from £2,000 and then £1,000 in earlier tax years), so for most business owners, the real change this year is the rate increase on dividends above that £500 threshold, not the allowance itself.
What this looks like in practice
For a basic-rate taxpayer, an extra 2 percentage points on dividend income above the £500 allowance means slightly less take-home from the same dividend payment. For higher-rate taxpayers, the same 2-point increase applies to a larger share of income for many owner-directors, since dividends are taxed after salary and other income, often pushing them into the upper band. Additional-rate taxpayers see no change in the headline dividend rate itself.
This is a tax rate change, not a change to the mechanics of how or when you declare dividends, nor to company-level Corporation Tax. If you're weighing up salary versus dividends as a way of extracting profit from your company, the increased dividend rates are one more input into that calculation — alongside your Corporation Tax position, National Insurance, and your personal income tax band — and it's worth revisiting with your accountant rather than assuming last year's split is still optimal.
Why this is easy to miss
Because the dividend allowance itself hasn't moved, and because 2 percentage points sounds small, this change is easy to overlook compared with more visible announcements. But for owner-directors who take a meaningful share of their income as dividends throughout the year, the effect compounds across every payment, not just a single year-end figure. It's a good prompt to check that any tax you're setting aside during the year — rather than only at your Self Assessment deadline — reflects the new rates, so you're not caught short in January.
It's also a reminder that dividend rates have moved more than once in recent years, alongside reductions to the dividend allowance itself. If your salary/dividend split was set up some time ago and hasn't been revisited since, this is a reasonable trigger to ask your accountant whether it's still the right balance under current rates, rather than assuming a structure that made sense two or three tax years ago still holds today.
What you should do now
- Check what proportion of your income you take as dividends, and roughly which tax band that income falls into.
- If you or your accountant normally review your salary/dividend split each tax year, make sure this year's review reflects the new 10.75% / 35.75% rates.
- Don't assume the dividend allowance has changed — it hasn't; only the rates above it have.
- If you're a director of a close company who also takes loans from the company, be aware that related tax treatment can move in step with dividend rate changes — check the current position with your accountant rather than relying on last year's figures.
- Budget for the higher rate in any tax you set aside through the year, particularly if you pay dividends regularly rather than as a single year-end distribution.
How ReceiptTidy helps
Dividend tax planning sits with you and your accountant — it's not something bookkeeping software calculates or advises on, and ReceiptTidy doesn't attempt to. What ReceiptTidy does is keep the underlying business records clean and current, so that when it's time to review your salary/dividend strategy, your accountant is working from accurate, up-to-date figures rather than reconstructing the year from missing receipts. Capture purchases by photo or email, let AI extract the supplier, date, amount and VAT, and sync the approved records into Xero, QuickBooks, FreeAgent, Sage or Zoho Books — one less thing to chase before your year-end conversation about how you pay yourself.
Sources
This article is general information, not tax or legal advice. Check the latest HMRC / GOV.UK guidance or speak to an accountant about your situation.