Dividends are taxed in 2026/27 at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band, after a £500 dividend allowance. They are stacked on top of your other income, so a director taking a £12,570 salary and £20,000 of dividends pays £2,096 of dividend tax; the same dividends on top of a £50,270 salary cost £6,971. No National Insurance is due on dividends, which is why they remain the main way small company owners pay themselves, and why the rates rose by two percentage points in April 2026.
The rates and how they stack
| Where the dividends fall | Rate |
|---|---|
| Within the £500 dividend allowance | 0% |
| Within any unused personal allowance | 0% |
| Basic rate band, total income up to £50,270 | 10.75% |
| Higher rate band, total income £50,271 to £125,140 | 35.75% |
| Additional rate band, total income over £125,140 | 39.35% |
Dividends are treated as the top slice of income. Salary, pension and rental income use up the personal allowance and the basic rate band first; the dividends then fall into whatever band is left. The £500 allowance is taxed at 0% but still occupies band space, so it does not push the rest of the dividends down a band. Above £100,000 of total income the personal allowance is withdrawn at £1 for every £2, which raises the tax on dividends in that range as it does on salary. The dividend tax calculator works the stacking for any mix of salary and dividends.
Worked examples
| Other income | Dividends | Dividend tax | How it is made up |
|---|---|---|---|
| £12,570 salary | £20,000 | £2,096 | £19,500 at 10.75% |
| £12,570 salary | £37,700 | £3,999 | £37,200 at 10.75%, filling the basic rate band exactly |
| £12,570 salary | £50,000 | £8,396 | £37,200 at 10.75%, £12,300 at 35.75% |
| £30,000 salary | £10,000 | £1,021 | £9,500 at 10.75% |
| £50,270 salary | £20,000 | £6,971 | £19,500 at 35.75% |
| Nothing | £20,000 | £745 | £12,570 within the personal allowance, £500 allowance, £6,930 at 10.75% |
The second row is the classic small-company arrangement: a salary equal to the personal allowance and dividends that fill the basic rate band, so that no income tax is paid on the salary and every dividend is taxed at 10.75%. Total income of £50,270 produces £3,999 of tax, an effective rate of 8%.
Salary or dividends: the company director’s question
A company owner can pay themselves through salary, which is deductible for corporation tax but carries National Insurance, or through dividends, which are paid from profit after corporation tax but carry no National Insurance. Corporation tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between.
| Company profit before pay | Salary of £12,570, rest as dividends | Take-home | Total tax and NI | Effective rate |
|---|---|---|---|---|
| £40,000 | £21,299 of dividends | £31,633 | £8,367 | 21% |
| £80,000 | £52,476 of dividends | £55,765 | £24,235 | 30% |
| £150,000 | £103,926 of dividends | £86,759 | £63,241 | 42% |
The £12,570 salary attracts £1,136 of employer National Insurance at 15% above £5,000, which single-director companies cannot offset with the Employment Allowance, but it earns a qualifying year for the State Pension and is deductible against corporation tax. Some directors take a salary at the lower earnings limit of £129 a week instead, £6,708 a year, which still earns the qualifying year and cuts employer National Insurance to £256; the trade-off is more profit taxed at corporation tax rates before it can be drawn, and on £40,000 of profit the take-home is about £360 lower. The salary versus dividend calculator compares any salary level for any profit, and the corporation tax calculator shows the marginal relief band.
Where dividends are not taxed at all
Dividends received inside an ISA or a pension are free of dividend tax and do not count towards the allowance or the bands. Outside those wrappers the first £500 of dividends each year is tax free, which is now a small figure: a portfolio of £12,500 yielding 4% uses the whole allowance.
Reporting and paying
Dividend tax is not deducted at source. Anyone receiving more than £10,000 of dividends in a year must complete a Self Assessment return; below that, HMRC can collect the tax by adjusting a PAYE tax code if you ask them to, or through Self Assessment if you already file. Company owners who pay themselves in dividends will normally be filing anyway. The tax is due by 31 January after the tax year, with payments on account where the bill is large enough; the payments on account calculator explains the instalments.
Common questions
What is the dividend tax rate for 2026/27? 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band, after a £500 allowance. Each rose by two percentage points from April 2026, except the additional rate.
How much is the dividend allowance? £500 a year. Dividends above it are taxed at the rate for the band they fall into once stacked on top of your other income.
How much tax on £20,000 of dividends? £2,096 if you also have a salary of £12,570, £6,971 if your salary is already £50,270, and £745 if the dividends are your only income.
Do I pay National Insurance on dividends? No. That is the main reason dividends are cheaper than salary for a company owner, and why the government has raised dividend rates rather than leaving the gap open.
Is it better to take salary or dividends? For most small company owners a salary around the personal allowance with dividends on top gives the lowest total tax, as the table above shows, while preserving a State Pension qualifying year. The balance shifts with profit level, pension contributions and the Employment Allowance.
Are dividends in an ISA taxed? No. Dividends on shares held in a stocks and shares ISA are entirely tax free and do not need to be reported.
Information, not financial advice. Rates and the allowance are the published 2026/27 figures on gov.uk: tax on dividends; worked examples are estimates from the site’s calculators for straightforward cases. Company remuneration depends on individual circumstances, so take accountancy advice before acting on them.