If you run your own limited company, the way you pay yourself just got more expensive. Dividend tax rates rose on 6 April 2026, and we are now far enough into the tax year that the effect is showing up in real numbers rather than in Budget headlines. Here is what changed, what it costs, and how to think about your salary and dividend split for the rest of the year.
What actually changed
The basic and higher rates of dividend tax each went up by two percentage points from April 2026. The additional rate stayed where it was, and the dividend allowance is unchanged.
| Rate band | 2025 to 2026 | 2026 to 2027 |
|---|---|---|
| Basic rate | 8.75 per cent | 10.75 per cent |
| Higher rate | 33.75 per cent | 35.75 per cent |
| Additional rate | 39.35 per cent | 39.35 per cent |
The dividend allowance remains £500. That is the amount of dividend income you can take each year before any dividend tax applies, and it has not moved.
What it costs in practice
Two percentage points sounds small. It is not nothing.
Take a director on a £12,570 salary who takes £37,700 in dividends, keeping their total income inside the basic rate band. The extra dividend tax this year is around £744.
Take a director on the same salary taking £60,000 in dividends, so part of it falls into the higher rate. The extra is closer to £1,190.
That is money out of your pocket for doing exactly what you did last year. It is worth half an hour of thought.
The salary side of the equation
Salary is a company expense, so it reduces your Corporation Tax bill. Dividends are paid out of profit after Corporation Tax, so they do not. That has always been the reason a modest salary usually earns its place in the mix, and the dividend rise has strengthened the case.
The complication is employer National Insurance, which runs at 15 per cent on salary above the £5,000 secondary threshold. So the two salary levels most directors end up choosing between are:
- £5,000, the point at which employer National Insurance starts. Below this, the company pays no National Insurance at all.
- £12,570, the personal allowance and the employee National Insurance threshold. You still pay no income tax and no employee National Insurance, but the company picks up employer National Insurance of £1,135.50 on the slice above £5,000.
The second option costs the company that £1,135.50, but it also cuts more Corporation Tax and moves income out of the dividend system entirely. For most sole director companies this year, the higher salary comes out ahead, often by £1,000 or more. Not always, though, which is the point: it turns on your profit level, your Corporation Tax rate and whatever else you have going on.
The Employment Allowance trap
Employment Allowance knocks up to £10,500 off an employer’s National Insurance bill, which would wipe out that £1,135.50 completely. Plenty of directors assume they get it. Most one-person companies do not.
A company cannot claim Employment Allowance if the only person paid above the secondary threshold is a single director. If your spouse is on the payroll doing genuine work at a genuine wage above £5,000, the picture changes. If it is just you, it does not apply, and any calculation that assumes it will give you the wrong answer.
Three things worth checking before April
- Whether your salary level is still the right one. You can change it part way through the year. It does not have to wait for 6 April.
- Whether pension contributions do a better job. Employer pension contributions are a company expense, attract no National Insurance, and are not touched by dividend rates at all. For directors who do not need every pound now, they have become noticeably more attractive.
- Whether the company structure still earns its keep. The gap between trading as a sole trader and running a limited company has narrowed with each of these changes. It is still the right answer for a great many people, but the sums deserve a fresh look rather than a rule of thumb from a few years ago. Our guide to sole trader or limited company walks through the wider comparison.
One caution. If you have staff on the payroll, or an employment contract of your own, National Minimum Wage rules come into the decision too, so do not set a salary in isolation from the rest of the payroll.
Get it worked out on your numbers
There is no single right salary. The answer comes from your profit, your other income, your plans for the money and your pension, and it is worth a proper calculation rather than copying what someone said in a forum.
That calculation is part of what we do for limited company clients as a matter of course, alongside the accounts, the Corporation Tax return, the payroll and the filing dates. Ltd Company Starter is from £105 per month, and Growing Strong, for companies wanting more planning and support through the year, is from £205 per month.
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