Dividend tax calculator 2026/27

Dividend tax rates for 2026/27

If you're a company director paying yourself in dividends, you need to know three numbers. The dividend allowance is £500 per year (down from £1,000 in 2023/24 and £2,000 before that). Above the allowance, you pay:

Tax band	Rate on dividends	Income threshold
Basic rate	8.75%	Up to £50,270
Higher rate	33.75%	£50,271 to £125,140
Additional rate	39.35%	Over £125,140

These rates are lower than the equivalent Income Tax rates on salary (20%, 40%, 45%). That's why most limited company directors take a mix of low salary and dividends.

How dividends interact with your salary

Dividends use up your tax bands just like salary does. If you take a £12,570 salary, you've used your entire personal allowance. Any dividends then start filling up the basic-rate band (£12,571 to £50,270). Once your combined salary and dividends pass £50,270, you're into higher-rate dividend tax at 33.75%.

This is why the common advice is to take exactly £12,570 in salary (using up the personal allowance and the NI primary threshold) and then take dividends up to whatever level you need. The salary costs your company employer NI, but gives you qualifying years for state pension.

Why directors take £12,570 salary

The £12,570 salary figure works because it's both the personal allowance and (approximately) the NI primary threshold. You pay zero Income Tax on it and zero employee NI. Your company pays employer NI at 15% on earnings above £5,000, so employer NI on a £12,570 salary is £1,136 per year. But the salary is a deductible expense for Corporation Tax, saving 19-25% of £12,570 (up to £3,143). The net cost of paying that salary is actually negative in most cases.

Corporation Tax: the hidden layer

Before you can pay dividends, your company pays Corporation Tax on its profits. The rates for 2026/27 are:

• 19% on profits up to £50,000 (small profits rate)
• 25% on profits over £250,000 (main rate)
• Marginal relief between £50,000 and £250,000 (effective rate 26.5% on profits in this band)

So £100 of company profit becomes £81 after Corporation Tax at 19% (for profits under £50K). You then pay dividend tax on that £81 when you take it out. The combined effective tax rate is higher than most people realise.

Worked example: £80,000 company profit

Let's say your company makes £80,000 profit after all expenses. You take a salary of £12,570. Here's how the tax works:

Step	Calculation	Amount
Company profit		£80,000
Less salary + employer NI	£12,570 + £1,136	-£13,706
Taxable profit		£66,294
Corporation Tax	£50,000 × 19% + £16,294 × 26.5%	£13,818
Profit after CT		£52,476
Dividends taken		£50,000

Now your personal tax on the £50,000 dividend:

Slice	Calculation	Tax
Dividend allowance	£500 at 0%	£0
Basic rate band remaining	£37,200 at 8.75%	£3,255
Higher rate	£12,300 at 33.75%	£4,151
Total dividend tax		£7,406

Your total personal income: £12,570 salary + £50,000 dividends = £62,570. Total personal tax: £7,406. That's an effective personal tax rate of 11.8%. Add in the £13,818 Corporation Tax and total tax on the £80,000 profit is £21,224, or 26.5% overall.

Compare that to an employed person earning £62,570 who'd pay Income Tax of £10,000 plus employee NI of £4,017, plus their employer pays £7,500 in employer NI. Total tax take from an equivalent salary: £21,517. The numbers are remarkably close for this profit level.

The employer NI saving

The biggest advantage of dividends isn't the lower tax rates themselves. It's avoiding employer National Insurance. Employer NI is 15% on earnings above £5,000 with no upper limit. On a £50,000 salary, that's £6,750 in employer NI. On £50,000 in dividends, it's zero.

This is why the salary vs dividend structure saves money at most profit levels. The tax rate on dividends is lower, and there's no NI on either side. For a full breakdown of how the optimal split works at different profit levels, read our guide: Salary vs dividends: the optimal split for 2026/27.

Important caveats

You can only pay dividends from retained profits. If your company doesn't have distributable reserves, paying dividends is illegal (and HMRC can reclassify them as salary, triggering NI). You also can't "create" profits by simply not paying bills.

And dividends don't count toward your state pension record. Only the £12,570 salary gives you a qualifying year for state pension purposes (you need 35 years for the full £11,502/year). If you've been a director for decades taking minimum salary, check your NI record on gov.uk.