The dividend tax rise is here: rerunning the salary-vs-dividend maths for 2026/27

Every limited company director knows the ritual: a modest salary, the rest in dividends, adjusted once a year. The Autumn Budget moved the numbers, and from 6 April 2026 the dividend rates are two percentage points higher: 10.75% at the ordinary rate (was 8.75%) and 35.75% at the upper rate (was 33.75%). The additional rate stays at 39.35%, and the £500 dividend allowance survives unchanged.

Two points does not sound dramatic. On a typical owner-managed company it is several hundred to a few thousand pounds a year — enough to justify an hour of proper thought.

The salary answer barely moves

For most single-director companies, a salary at the £12,570 personal allowance remains the right anchor in 2026/27. It is pensionable, it preserves your state pension record, it is deductible for corporation tax, and with the Employment Allowance unavailable to sole-director companies, the employer National Insurance above £5,000 at 15% is the known cost of the structure.

Where there are two or more people on payroll and the £10,500 Employment Allowance is in play, a higher salary can stack up — this is exactly the calculation we rerun for clients each April rather than recycling last year's answer.

What the rise actually changes

The rise does not make dividends worse than salary — dividends still avoid National Insurance entirely, and NI is the expensive tax. What it does is narrow the gap and raise the value of three other levers:

Pension contributions. An employer pension contribution remains the single most efficient extraction route: deductible for the company, no NI, no dividend tax, growing tax-free. If you are not using a meaningful slice of your £60,000 annual allowance, you are choosing to pay the new rates for fun.

Spouse shareholdings. Where a husband, wife or civil partner genuinely participates in the company, a properly structured shareholding uses two £500 allowances and two basic-rate bands. This must be done correctly — outright gifts of ordinary shares, real dividends, proper paperwork — which is precisely the kind of thing we handle.

Timing. Dividends are taxed when declared. A director hovering near the higher-rate threshold can often save real money by shifting a declaration a few weeks either side of 5 April. This requires distributable reserves and board minutes that stand up — backdating is fraud, planning is not.

A worked example

Take a company with £80,000 of post-salary profit, one director, salary £12,570:

• Corporation tax (with marginal relief in play) comes off first.
• Dividends up to the basic-rate threshold now cost 10.75% instead of 8.75% — about £750 more than last year on a full basic-rate band of dividends.
• Above that, each pound costs 35.75%.
• Redirecting £20,000 of that extraction into an employer pension contribution saves corporation tax and the dividend tax entirely — for many clients that single decision outweighs the whole Budget rise.

What to do this month

The new rates apply to dividends declared from 6 April 2026. If your dividend plan was written before the Budget, it is out of date. Bring your latest management figures, and we will rerun the split, the pension option and the family shareholding position in one sitting — it rarely takes more than an hour, and it is included in our fixed fee for company clients.

The worst plan is last year's plan. Send an enquiry from this page and we will put the 2026/27 numbers on one page for you.