2026/27
Dividend tax
| Band | Rate | Notes |
|---|---|---|
| Up to £37,700 | 10.75% | Basic |
| £37,701 – £125,140 | 35.75% | Higher |
| Over £125,140 | 39.35% | Additional |
- Dividend allowance£500
2025/26
Dividend tax
| Band | Rate |
|---|---|
| Over £0 | 8.75% |
| Over £0 | 33.75% |
| Over £0 | 39.35% |
- Dividend allowance£500
Dividend tax explained
Dividends from shares are taxed differently from salary. You have a tax-free dividend allowance, and dividends above it are taxed at the ordinary, upper and additional dividend rates depending on your income band. The tables above show the current allowance and rates.
For company directors, the balance between salary and dividends is a key planning point. Our personal tax and compliance services optimise it for you.
A dividend is not just a withdrawal
Dividends can only be paid out of accumulated realised profit after corporation tax. Cash in the bank is not the test — some of that balance belongs to HMRC for VAT and corporation tax. A dividend paid without sufficient profit is not a dividend in law: it is a loan to the director, taxed accordingly, and recoverable personally if the company later fails.
The paperwork is light and it matters: figures showing the profit exists, a board minute, and a dividend voucher. All three take minutes at the time and cannot be produced convincingly afterwards.
Where the dividend sits
Dividends are taxed as the top slice of income, so the rate depends on everything else you receive. There is a dividend allowance, and after it the rates are lower than for salary — but the company has already paid corporation tax on the profit, so the comparison with salary has to be made across both taxes rather than on the personal rate alone.
Frequently asked
How much dividend is tax-free?+
Up to the dividend allowance each year; dividends above it are taxed at the dividend rates for your income band. See the current figures above.
Is it better to take salary or dividends?+
For owner-directors a mix is usually most efficient, but it depends on profits, other income and NI. We calculate the optimal split.
Can I take a dividend if the company has cash but no profit?+
No. Dividends come out of accumulated profit after tax, and cash is not the same thing — part of that balance is VAT and corporation tax you are holding. A dividend paid without profit is treated as a loan to the director, with the tax consequences that follow, and can be reclaimed from you personally in an insolvency.
Is it better to take salary or dividends?+
It depends on your profit, what you need to draw, and your pension plans, and the comparison only works if you count the corporation tax paid before the dividend as well as the personal tax after it. A small salary usually earns its place by protecting your state pension record; beyond that it is a calculation, not a rule.
Rates in context
Knowing the rate is not the same as knowing the bill.
Thresholds interact — allowances taper, reliefs stack, and the order you take income in changes the total. We plan for that.
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