Dividend Tax Went Up in April. Here Is What It Costs You

The ordinary and upper rates each rose two percentage points on 6 April 2026. The £500 allowance did not move. If your salary and dividend split was set before then, it is out of date.

On 6 April 2026 the dividend rates went up by two percentage points each at the ordinary and upper levels. If you are a director drawing dividends and nobody has recalculated your split since, you are running on figures that no longer apply.

The rates

The £500 dividend allowance is unchanged. Dividends within it are tax free, though they still count towards your total income when working out which band the rest fall into.

What it costs

A director on the common structure — £12,570 of salary, the rest as dividends — taking around £40,000 of dividends mostly inside the basic rate band pays roughly £800 more than under the old rates for the same money. Someone drawing well into the higher rate band feels the upper rate change instead, at the same two points.

Why dividends still win

The advantage was never the headline rate. It is that dividends attract no National Insurance, employee or employer, while salary attracts both. That has not changed.

What has narrowed is the margin. Salary is deductible against Corporation Tax and dividends are paid out of profit that has already borne it, so the comparison depends on your Corporation Tax rate as well as your Income Tax band. At marginal relief profit levels the answer is less obvious than it looks.

The salary still matters

For most single-director companies a salary around the £12,570 personal allowance and National Insurance primary threshold remains the sensible base. It gets a qualifying year towards the state pension, it is deductible against Corporation Tax, and no employee National Insurance falls due.

Where a company can claim the Employment Allowance the calculation can favour a higher salary, which is worth checking rather than assuming either way.

What to do

Do not restructure on the strength of a two-point change. Do recalculate. Our salary and dividend calculator uses the current rates and will tell you in a couple of minutes whether your split is still the right one, and by how much. For most directors the answer is a small adjustment; for a few it is more than that, and those are exactly the people who would otherwise not find out until the year end.

Getting help with this

AJH Accountants handles limited company for clients across the UK. We deal with HMRC, tell you what you can claim, and file on time, so nothing rests on you remembering a deadline. See how the service works, ask for a fixed-fee quote, or call the office on 01204 840303.

Originally published at ajhaccountant.co.uk/blog/dividend-tax-rates-what-changed-april-2026.