Dividend Tax 2026: How Limited Company Directors Can Reduce Their Tax Bill

Dividend Tax 2026: How Limited Company Directors Can Reduce Their Tax Bill

If you run a limited company in the UK, your tax position has changed.

From the 2026 tax year, dividend tax rates have increased. At the same time, the dividend allowance remains low. This means many directors will pay more tax when taking money out of their company.

If you are still using the same strategy as last year, you are likely overpaying.

This guide explains what has changed, how it affects you, and what you should do now.

What has changed in dividend tax?

From April 2026, dividend tax rates are:

• 10.75% for basic rate taxpayers

• 35.75% for higher rate taxpayers

• 39.35% for additional rate taxpayers

The dividend allowance remains at £500.

This means only £500 of dividend income is tax-free. Anything above this is taxed at the rates above.

For many business owners, this creates a higher overall tax bill compared to previous years.

Why this matters for company directors

Most limited company directors take income in two ways:

• Salary

• Dividends

This structure works because:

• Salary uses your personal allowance

• Dividends are taxed at lower rates than salary

However, with higher dividend tax rates and a low allowance, the balance has shifted.

If you do not review your structure, you may:

• Pay more personal tax

• Miss available reliefs

• Reduce your overall take-home income

Example: How tax can increase

Let’s take a simple example.

You take £40,000 as dividends from your company.

After the £500 allowance, £39,500 is taxable.

If you are a higher rate taxpayer, you could pay 35.75% tax on most of this amount.

This results in a significant tax bill.

Without planning, many directors lose thousands each year.

What you should do now

You should review your income strategy before the tax year progresses.

Key areas to focus on:

Review your salary and dividend mix

A small adjustment in salary can reduce overall tax. The right balance depends on your total income and company profits.

Use pension contributions

Company pension contributions:

• Reduce corporation tax

• Do not attract dividend tax

• Help build long-term wealth

This is one of the most effective tax planning tools available.

Check your tax bands

You need to monitor when you move from basic rate to higher rate tax. Planning your income can help you stay within lower tax bands where possible.

Use your spouse’s allowance

If your spouse is a shareholder, you can use both allowances and lower tax bands. This reduces the total tax paid by the household.

Review director’s loan account

If you have taken money from the company, it must be structured correctly. Poor planning can lead to additional tax charges.

Plan before year end

Last-minute planning often limits your options. Early planning gives you more control and better results.

Common mistakes to avoid

Many directors make these mistakes:

• Using last year’s strategy without review

• Ignoring tax band thresholds

• Not using pension contributions

• Taking large dividends without planning

• Leaving decisions until January

These mistakes increase your tax bill unnecessarily.

How we help at SV & Co

At SV & Co Chartered Certified Accountants, we work with limited company directors across Southall, Ealing, and West London.

We help you:

• Create a tax-efficient salary and dividend strategy

• Reduce personal and corporation tax

• Plan pension contributions properly

• Stay compliant with HMRC

• Understand your income clearly

We do not use generic advice. Every plan is based on your income, business, and long-term goals.

Take action now

Dividend tax has changed. Waiting will cost you money.

If you run a limited company, this is the right time to review your income structure.

A simple review can help you:

• Reduce your tax bill

• Increase your take-home income

• Plan your finances with confidence

Contact SV & Co today and make sure your tax strategy works for you, not against you.