If you run a limited company in Harrow, Stanmore, Wembley, or the surrounding area and pay yourself through a combination of salary and dividends, the tax landscape in 2026/27 is noticeably tighter than it was just a few years ago.
Here is a clear breakdown of where things stand, and how to plan around it.
The Dividend Allowance in 2026/27
The tax-free dividend allowance is currently £500 per year.
This is a dramatic reduction from the £2,000 allowance that existed in 2022/23, and the £1,000 that applied in 2023/24. For directors who rely on dividends as their primary income, this shrinkage has meaningfully increased their tax bills over the past two years.
Dividend Tax Rates for 2026/27
Once you’ve used your £500 allowance, dividends are taxed based on which income tax band they fall into:
| Rate Band | Dividend Tax Rate |
|---|---|
| Basic rate (income up to £50,270) | 8.75% |
| Higher rate (income £50,271–£125,140) | 33.75% |
| Additional rate (income over £125,140) | 39.35% |
Note: Your salary, any employment income, and other earnings all count toward your income bands before dividends are assessed. Dividends sit on top of everything else.
A Worked Example
Take a director who pays themselves a salary of £5,000 and draws £40,000 in dividends in 2026/27:
- Personal allowance: £12,570
- Salary: £5,000 (within personal allowance, no income tax)
- Remaining personal allowance: £7,570, used against first £7,570 of dividends
- Next £500 in dividends: covered by dividend allowance (tax-free)
- Remaining dividends: £40,000 − £7,570 − £500 = £31,930 taxed at 8.75%
- Dividend tax payable: approximately £2,794
This compares to paying additional Corporation Tax if you left that £40,000 in the company, which would be at 19% (small profits rate). The comparison is not always straightforward, it depends on your total income and plans for the funds.
Key Planning Points for 2026/27
Use your spouse or civil partner’s allowances. If your partner has unused personal allowance or basic rate band, issuing dividends to them (where they hold shares) can be highly tax-efficient. This requires proper share structure and should be set up carefully.
Consider pension contributions. Employer pension contributions from your company are a Corporation Tax deduction and do not attract employer NIC. For directors who don’t need all their income immediately, pension contributions are one of the most tax-efficient routes available.
Time your dividends carefully. Don’t declare dividends until the company actually has distributable reserves, that is, retained profits after Corporation Tax. Dividends paid out of insufficient reserves are illegal and create HMRC issues.
Review your corporate structure annually. The right salary and dividend combination changes every April with the tax year. A brief annual review with your accountant typically pays for itself.
I help limited company directors in Harrow, Stanmore, and Wembley structure their remuneration efficiently each year. If you haven’t had a review since the 2025 NI changes, it’s worth a conversation.
📧 info@yourtaxhelp.co.uk | 📞 07478 645331
Your Tax Help Accountants — Stanmore, London. HMRC Registered Agent.