If you receive dividends from a limited company, it is important to understand how the dividend allowance works and how much tax you may need to pay.
For the 2026/27 tax year, the dividend allowance remains:
£500
This means the first £500 of dividend income you receive is taxed at 0%.
The dividend allowance is the amount of dividend income you can receive before paying dividend tax.
The allowance remains:
£500
This allowance applies in addition to your Personal Allowance.
For most taxpayers, the standard Personal Allowance remains:
£12,570
This means many limited company directors first use their Personal Allowance through salary and then receive additional income through dividends.
Once your dividend income exceeds the £500 dividend allowance, dividends are taxed according to your income tax band.
| Tax Band | Dividend Tax Rate |
|---|---|
| Basic Rate | 10.75% |
| Higher Rate | 35.75% |
| Additional Rate | 39.35% |
These rates apply to dividend income above the £500 allowance.
You are a company director
You take a salary of £12,570
You receive dividends of £30,000
You have no other income
Your salary uses your Personal Allowance:
£12,570
Estimated Income Tax on salary:
£0
The first of dividends falls within the dividend allowance:
£500
Taxed at:
0%
Remaining taxable dividends:
£29,500
Assuming this falls within the basic rate band, dividend tax would be charged at:
10.75%
Estimated dividend tax:
Approximately £3,171
Note: This example is simplified and actual liabilities depend on total company profits, other income, student loans, pension contributions, Scottish tax rates, marriage allowance, and other personal circumstances.
The most tax-efficient salary and dividend mix depends on your personal situation.
Dividend Tax
Salary Tax
National Insurance
Corporation Tax Impact
This helps directors estimate exactly how much tax they may owe in the 2026/27 tax year.
Dividend tax rates are usually lower than salary tax rates
Dividends are not subject to National Insurance contributions
Dividends can be tax efficient when combined with salary
Dividends can only be paid from company profits
Remember: Corporation Tax must still be paid by the company, and dividends must be properly declared and recorded in your company accounts.
Tax-efficient Salary
Dividends
Lower Tax
For many limited company directors, the common approach is to take a tax-efficient salary and withdraw additional income as dividends.
Income Tax
National Insurance
Overall Tax Costs
Dividends should only be paid if the company has sufficient retained profits. Improper dividends can create accounting and tax problems.
Tip: Always ensure your company has enough retained earnings before declaring dividends.
Dividends are paid after Corporation Tax. This means:
Remember: Both taxes must be accounted for when planning your dividend strategy.
Many directors fail to maintain proper documentation:
Prepare dividend vouchers
Record dividends properly
Maintain bookkeeping
Good bookkeeping and proper accounting records are essential.
Many directors now use online accountants for limited company support to help with dividend planning, payroll, annual accounts, Corporation Tax, director tax planning, and bookkeeping.
At Taxwise Accountancy, we support limited companies across the UK with affordable accounting and tax advice.
Online Accountants for Limited CompaniesIf you are a company director and need help with dividends, annual accounts, Corporation Tax, payroll, or tax-efficient salary planning, our team at Taxwise Accountancy can help.
Use our calculator to estimate your tax position for 2026/27.