What is the dividend allowance for 2026/27?

£500 a year at 0%, then 10.75% basic, 35.75% higher, and 39.35% additional rate on dividends above the allowance. The allowance fell from £2,000 in 2022, so older guides understate the bill.

How much dividend tax will I pay on £40,000 of dividends?

With a £12,570 salary alongside: £4,821.25 — £3,999 at 10.75% on the basic-band slice plus £822.25 at 35.75% on the £2,300 spilling into the higher band. You keep £35,178.75 of the dividends.

What is the most tax-efficient salary and dividend split?

Usually a £12,570 salary (exactly the Personal Allowance) plus the rest as dividends: no Income Tax or employee NIC on the salary, maximum dividends inside the 10.75% basic band. Confirm against your other income — salary elsewhere fills the bands first.

Do dividends affect the Personal Allowance?

The allowance applies to total income, so a £12,570 salary uses it in full and every dividend pound above the £500 dividend allowance is taxed at the band rates. Salary from elsewhere eats the allowance before dividends get any of it.

Should I take dividends or stay a sole trader?

At 2026/27 rates there is no universal winner — around £55,000 of profit the two routes land within £86 of each other. Price both in the UK contractor tax calculator and read the sole trader versus limited company framework before deciding.

Do I pay National Insurance on dividends?

No — dividends carry no employee or employer National Insurance, which is a large part of why the salary-plus-dividends mix beats salary alone. The company pays corporation tax before distributing, and you pay dividend tax on receipt; NICs touch neither leg.

Can I pay myself only in dividends with no salary?

Technically yes, but a £12,570 salary is usually optimal: it uses the Personal Allowance, keeps a qualifying year toward the State Pension, and preserves the basic band for dividends at 10.75%. Zero salary wastes allowance you cannot carry forward.

When must dividends be voted and documented?

Before payment: board minutes recording the dividend vote plus a dividend voucher per shareholder, every time. HMRC can reclassify undocumented drawings as salary or loans, which destroys the tax advantage retroactively — paperwork first, transfer second.

UK Dividend Tax Calculator: 2026/27 Rates + Tool

By Maya Ellison · Updated October 2026

UK dividend tax for 2026/27 is 0% on the first £500, then 10.75% basic, 35.75% higher, and 39.35% additional rate — and dividends stack on top of salary, so a £12,570 salary leaves the basic band open for the first slice. The standard contractor mix (£12,570 salary plus the rest as dividends) works because the salary uses the Personal Allowance while dividends fill the basic band at 10.75%. On £40,000 of dividends above that salary the bill is £4,821.25. Run your own split in our UK contractor tax calculator, which prices salary-plus-dividends against the sole-trader route side by side.

The one-line version: take a £12,570 salary, take the rest as dividends, pay 10.75% on the basic-band slice and 35.75% above it — and recheck every tax year, because these rates have risen twice since 2022.

2026/27 dividend rates and bands

Per GOV.UK's dividends guide: £500 allowance at 0%, 10.75% inside the basic band (total income to £50,270), 35.75% from £50,271 to £125,140, 39.35% above. Dividends sit on top of all other income, so salary and any employment income fill the bands first. The allowance has shrunk from £2,000 (2022) to £500 — a stealth rise worth £500-plus a year to a basic-rate director, which is why old guides understate today's bill.

Worked example: £12,570 salary + £40,000 dividends

Total income is £52,570. The £12,570 salary sits inside the Personal Allowance: no Income Tax on it. Of the £40,000 dividends, £500 falls in the allowance (£0), £37,200 sits inside the basic band at 10.75% (£3,999), and the remaining £2,300 spills into the higher band at 35.75% (£822.25) — total dividend tax £4,821.25, keeping £35,178.75 of the dividends. Push dividends £10,000 higher and nearly all of the extra faces 35.75%: the marginal rate, not the average, is what the next invoice is worth.

The optimal salary mix

£12,570 of salary exactly uses the Personal Allowance: no Income Tax and no employee National Insurance on it, while keeping the basic band maximally open for dividends at 10.75%. Higher salaries waste allowance-free band that dividends could have filled cheaply; lower salaries leave Personal Allowance unused. One warning: the mix assumes profits exist to distribute — dividends can only come from post-corporation-tax profit (19% to 25%), so companies near breakeven should check the contractor calculator rather than assuming the mix always wins. The full structure comparison is in our sole trader vs limited company guide.

2026/27 dividend rates at a glance

Slice of dividends	2026/27 rate
First £500 (allowance)	0%
Basic band (total income to £50,270)	10.75%
Higher band (£50,271–£125,140)	35.75%
Additional band (above £125,140)	39.35%

What pushes dividends into the higher band

Two things, and only two: other income and dividend size. Salary, rental profit, or pension income fills the basic band first, so every pound of it pushes a pound of dividends from 10.75% to 35.75%. Directors with outside income should model total income, not dividends alone.

Size does the rest. The basic band holds £37,700 above the allowance zone; a £12,570 salary plus £40,000 of dividends spills just £2,300 into the higher band. Double the dividends and nearly all of the extra faces 35.75% — which is why the marginal rate, not the average, prices the next invoice.

Four mistakes that inflate the bill

Using last year's rates. The allowance fell from £2,000 to £500 and basic-rate dividend tax rose from 8.75% to 10.75%. Spreadsheets and forum advice from 2022 understate the 2026/27 bill by hundreds — always check the current GOV.UK page, not a saved bookmark.

Forgetting other income. A part-time salary, rental profit, or pension fills the basic band before dividends touch it. Model total income: £20,000 of outside income pushes £20,000 of would-be 10.75% dividends up to 35.75%, more than tripling that slice.

Drawing dividends with no profit. Dividends are distributions of post-tax profit, not drawings on demand. A company near breakeven has little to distribute — illegal dividends get reclassified, and the advantage evaporates with penalties attached.

Skipping the paperwork. Every dividend needs a board minute and a voucher before payment. Undocumented drawings invite HMRC to treat them as salary or director's loans, taxed worse than proper dividends. Minutes take five minutes; reconstructions take months.

Related tools

Price the full salary-plus-dividends split against going sole trader in the UK contractor tax calculator, isolate the sole-trader half in the sole trader tax calculator, and benchmark the turnover behind the dividends in the UK freelance rates guide.